The Legend of The Big Push

"The poorest countries are in a poverty trap (they are poor only because they started poor) from which they cannot emerge without an aid-financed Big Push, involving investments and actions to address all constraints to development, after which they will have a takeoff into self-sustained growth, and aid will no longer be needed.

Argument: [If POVERTY TRAP --> BIG PUSH] v [If BAD GOVERNMENT --> NOT BIG PUSH]

Over 1950 - 2001, countries with below-average aid had the same growth rate as countries with above-average foreign aid. Poor countries without aid had no trouble having positive growth.

The solution to this conundrum is that the identities of the poorest countries at the start of each period shown keeps changing. It doesn't help the poverty trap legend that 11 our of the 28 poorest countries in 1985 were not in the poorest 1/5th back in 1950… If the identity of who is in the poverty trap keeps changing, then it must not be much of a trap.

The UN Millennium Project argues that it is the poverty trap rather than bad government that explains the poor growth of those countries and their failure to make progress toward the MDGs.

"BAD GOVERNMENT" is not as good for fund raising for aid, as "POVERTY TRAP"

When we control both for initial poverty and for bad government, it is bad government that explains the slower growth.

POVERTY TRAP: (1985-2001 = 1.1% slower)

BAD GOVERNMENT: (1985-2001 = 1.3% slower)

We cannot statistically discern any effect of initial poverty on subsequent growth once we control for bad government. This is still true if we limit the definition of bad government to corruption alone.

The recent stagnation of the poorest countries appears to have more to do with awful government than with a poverty trap, contrary to the UN/J.SACHS hypothesis.

The poor countries were stuck with authoritarian government (or another form of authoritarian rule: colonial occupation). This could imply a bad government trap, but not the savings-and-technology poverty trap favored by the UN/SACHS story.

So we had the world's 25 most undemocratic government rulers (out of 199 countries the World Bank rated on democracy) get a sum of $9 billion in foreign aid 2002. Similarly the 25 most corrupt countries got $9.4 billion. The top 15 recipients of foreign aid in 2002, who each got more than $1 billion each, have a median ranking as the worst fourth of all governments everywhere in 2002.

It would be good to get aid from the rich of rich countries to the poor of poor countries, but what we see happening is that aid shifts money from being spent by the best governments in the worlds to being spend by the worst.

What are the chances that these billions are going to reach the poor people??

"Weak, but Improving" World Bank report on Africa (81,84,89,94,00,04)

The contradiction between 'weak institutions' and 'remarkable progress' calls to mind Japanese government propaganda during the WWII, which to the very end of the war celebrated every battle as a triumph.

What we shock therapists didn't realize was that all reforms are partial; it is impossible to do everything at once, and no policy-maker has enough information even to know what 'everything' is… the "unintended consequences" problem is greater with a large-scale reform than with a smaller one.

The overambitious reforms of shock therapy and structural adjustment were the flight of Icarus for the World Band and the IMF. Aiming for the sun, they instead descended into a sea of failure

As the great Alfred E. Newman once said, "Crime doesn't pay… as well as politics."

-- excerpts from: "The White Man's Burden" by William Easterly (2006) --