|
post-autistic
economics review |
|
issue 33
contents
PAE
Review index
home page |
|
Forum on Economic
Reform In recent decades the alliance of neoclassical economics and neoliberalism has hijacked the term “economic
reform”. By presenting political choices
as market necessities, they have subverted public debate about what economic
policy changes are possible and are or are not desirable. This venue promotes discussion of economic
reform that is not limited to the one ideological point of view. Can the World Bank Be Fixed? David Ellerman* (University
of California at Riverside) © Copyright: David Ellerman 2005 Abstract If the goal of development assistance is to foster autonomous
development, then most aid and "help" is actually unhelpful in the
sense of either overriding or undercutting the autonomy of those being
"helped." The two principal
forms of unhelpful "help" are social engineering and charitable relief. The World Bank is the primary example over
the last half century of the failures of social engineering to
"engineer" development.
Frustration over these failures, particularly in Africa, is now
leading the Bank and many other development agencies towards the other form
of unhelpful help, namely, long-term charitable relief. The paper outlines some of the reasons for
the failure of socially engineered economic, legal, and social reforms both
in the developing world and in the post-socialist transition countries. Finally, the argument [given at book length
in Ellerman 2005] is summarized in five structural
reasons why the World Bank cannot be "fixed." Introduction
The World Bank (the "Bank")
might be taken as the premier development assistance agency. With some exceptions, it represents much of
what is wrong with the approach to development assistance in the West over
the last half century. I will try to
outline an alternative approach to development assistance using the Bank and
related agencies (e.g., the IMF or
"Fund") as the primary example of how and why development
assistance in the customary mode is ineffective and unhelpful. This is not particularly a Left-Right
issue, at least not as conventionally understood. Since World War II, Communism had offered
an 'alternative' path to modernization, but from the viewpoint taken here, it
was only a more extreme and bone-headed version of the authoritarian and
technocratic social engineering mentality exemplified by the World Bank. Our approach is to rethink development
assistance from a basic principle of fostering autonomy, not to offer a
critique of the Right as if the Left already had a better alternative. Autonomy-Respecting
Assistance
The
Helper-Doer Relationship
It is not a new idea that genuine help or
assistance will foster autonomy, self-reliance, and self-help at all levels
(individuals, organizations, regions, and countries). There is the old Chinese proverb that
instead of giving people more fish, it is better to teach them how to fish—or
better to help them learn how to fish.
There is also the old cliché "helping people help
themselves" which I used as the title for my recent book on this topic [Ellerman 2005]—with the emphasis decidedly on
"people helping themselves." Even the World Bank begins its Mission
Statement with a dedication to helping people help themselves (www.worldbank.org). The idea cuts across the fields of human endeavor where there is some helping or assistance
relationship such as education, psychology, management, organizing, and counseling. Hence
it is useful to think in terms of a generic helper-doer relationship where
the teacher-learner, therapist-patient, manager-worker, and so forth are
special cases each with their own particular characteristics. But most 'help' in these relationships is
unhelpful in the sense of not only not fostering autonomy but of fostering
subservience, conformity, passivity, and dependence. Hence a theory of autonomy-respecting help
also must include a theory of unhelpful 'help'. The Fundamental Conundrum of Development Assistance
The assumed goal is transformation towards
autonomous development on the part of the doers, with the doers helping
themselves. The problem is how can the helpers supply help that actually
furthers rather than overrides or undercuts the goal of the doers helping
themselves? This is actually a paradox: If the helpers are supplying help
that is important to the doers, then how can the doers really be helping
themselves? Autonomy cannot be externally supplied. And if the doers are to
become autonomous, then what is the role of the external helpers? This
paradox of supplying help to self-help, “assisted self-reliance”1
or assisted autonomy, is the fundamental
conundrum of development assistance. Over the years, the debates about
aid, assistance and capacity-building keep circling around and around it. Unhelpful Help
There are many strategies for development
assistance that may supply help in some form but actually do not help people
help themselves. The forms of help that override or undercut people’s
capacity to help themselves will be called “unhelpful help.”2 There are essentially two ways that the
helper’s will can supplant the doer’s will to thwart autonomy and self-help: 1)
The
helper, by social engineering, deliberately tries to impose his will on the
doer; or 2)
The
helper, by benevolent aid, replaces the doer’s will with her will, perhaps
inadvertently. “Override” or “undercut” are shorthand
terms for these two conceptually distinct yin-and-yang forms of unhelpful
help (which may be combined, as when benevolence hides the desire to
control).3 Unhelpful Help #1: Social Engineering
The overriding form of unhelpful help is a
type of social engineering. The helpers supply a set of instructions or conditionalities about what the doers should be doing.
They also offer motivation to follow this blueprint through various forms of
aid to override the doers’ own motivations. If we use the metaphor of the
doers as trying to work their way through a maze, then the helpers as social
engineers perceive themselves as helicoptering over
the maze, seeing the path to the goal, and supplying instructions (knowledge)
along with carrots and sticks (incentives) to override the doers’ own
motivation and push the doers in "the right direction." Unhelpful Help #2: Benevolent Aid
The second form of unhelpful help occurs
when the helper undercuts self-help by inadvertently supplying the motivation
for the doer to be in or remain in a condition to receive help. One prominent
example of this is long-term charitable relief. The world is awash with
disaster situations that call for various forms of short-term charitable
relief. The point is not to oppose these operations but to point out how
charitable relief operates in the longer term to erode the doers’ incentives
to help themselves—and thus creates a dependency relationship. Charity
corrupts and long-term charity corrupts long term. All aid to adults based on the simple
condition of needing aid risks displacing the causality. The working
assumption is that the condition of needing aid was externally imposed (e.g.,
a natural disaster); the aid recipient shares no responsibility. But over the
course of time, such aid tends to undermine this assumption as the aid
becomes a reward for staying in the state of needing aid,4 all of
which creates dependency and learned helplessness. Thus relief becomes the
unhelpful help that undermines self-help. Modernization
and Development as a Social Engineering Project
Prior to the twentieth century, economic
development in Europe and North America was seen as the outcome of a natural
process of growth rather than as the result of a massive social engineering
project. But when the lagging
countries envisioned their "late industrialization," engineering
and even military images came to the foreground. After the revolution in a Russia barely
emerging from feudalism, real-existing
socialism was seen as a socially-engineered short-cut directly to modernity
and an industrial society. In the West, socially engineered visions
of development did not take hold until after World War II. The Marshall Plan was seen as an enormously
successful "project" for the reconstruction of western Europe.5
With the liberation of the many former European colonies in the Third World
and the advent of the Cold War, the West quickly realized that it needed to
offer a non-communist path to rapid modernization and industrialization. With the newly created World Bank and
International Monetary Fund (IMF) as the lead
organizations and with the Marshall Plan as the mental model, economic
development was reconceptualized as a social
engineering megaproject rather than as an
evolutionary socio-economic-historical process. The Soviet Bloc countries were not members
of the World Bank or IMF (unlike the United
Nations)—in spite of the adjectives "World" and
"International"—so the race was on between the West and Soviet Bloc
to offer the best development model to the "Third World." With the dissolution of the Soviet Bloc
and the Soviet Union in the early 1990s, the western development assistance
institutions triumphed as offering the One Best Way. And the Second World, the formerly
socialist countries, became new clients of the international development
agencies. International development is
now a huge "industry" in itself.
The World Bank and the IMF are joined by
development organizations associated with the UN (e.g., the UN Development
Program and the UN Industrial Development Organization), by the World Trade
Organization, by regional development banks in Africa, East Europe, Latin
America, and Asia, by bilateral foreign aid agencies (such as the US Agency
for International Development), by a panoply of operating foundations working
on development issues (e.g., the Ford,
Rockefeller, Carnegie, and Soros foundations), and
finally by swarms of non-governmental organizations (NGOs) from both the
North (developed countries) and South (developing countries). Over the decades, the major development
assistance institutions have run through a number of development foci (or
fads). Initially, the focus was on
provision of physical infrastructure: roads, seaports, airports, dams, and
power plants. After much expensive
disappointment, the emphasis shifted to education (formation of "human
capital"), health, and the satisfaction of basic necessities. These programs represented a swing of the
pendulum away from the engineering-oriented infrastructure programs towards
the other form of unhelpful help, charitable programs. But as these charity-oriented programs
yielded neither the desired developmental results nor loan repayments, the
pendulum swung back to social engineering in the form of structural
adjustment programs. Here the social
engineering came more from economics than civil engineering, and the slogan
was "Get the prices right."
But since markets require a reasonably well-functioning set of
institutions, the focus on prices and structural adjustment soon broadened to
governance issues including corruption, business climate, and a legal system
to protect property rights and to adjudicate and enforce contracts. Hence the current slogan is "Get the
institutions right" as if institutions could be socially engineered as
large development projects. Today the
pendulum in the World Bank and many of the other international and bilateral
agencies is starting to swing back in the direction of charitable disaster
relief. Development, where it has
occurred (e.g., East Asia), has been a relatively incremental process rather
independent of the social engineering projects and programs offered by the
Bank and Fund. The major assistance
bureaucracies such as the Bank need to reinvent reasons for their continued
existence. The crisis of AIDS and
other diseases such as malaria threaten to undo many of the meager developmental accomplishments of the past. It is likened to a "silent
tsunami" that calls for the development assistance agencies to shift
into disaster relief mode to meet the crisis. The other
major factor today came forcefully into the foreground with the events of
September 11, 2001. The War on Terror
may eventually replace the Cold War in the rationalization of the major
agencies. The ascent of Paul Wolfowitz to the Presidency of the World Bank may be a
case in point. The role of the major
agencies is twofold. There is the
"camp-following" role of post-conflict "nation-building"
in Afghanistan and Iraq that builds upon earlier post-conflict experience in
the Balkans and East Timor. And there
is the longer term "draining the swamp" role of fighting the
poverty and desperation that supposedly bred terrorism.6 After nearly six decades of attempts to
socially engineer development, the various efforts cannot be judged a
success.7 Where development
has been most successful in the East Asian countries, the standard model
(e.g., "Washington Consensus") has not been followed and outside
observers do not credit the development agencies with a key role [e.g., Wade
1990]. Where the international
agencies have had the freest hand to try to impose solutions, e.g., in Africa
and Latin America, there has been the least success [e.g., Van de Walle 2001 on Africa].
This was the conclusion of even the World Bank's own respected
researcher William Easterly [2001].8 The Challenge of the Transition: Shock
Therapy as Ersatz Social Engineering
The transition from communism to a private
property market economy presented a unique challenge to the major development
assistance agencies. It was a new challenge since prior history did not
provide examples of this systemic transition.
The transition is a wonderful case study of the effects of
'enlightened' social engineering for two reasons. One reason is that the transition and the
role of the major development agencies in it took place largely in the decade
of the 1990s so that we have a little perspective of history. The other reason is that there was a
remarkable natural experiment in the transition; the two major countries,
Russia and China, each used opposite philosophies. Russia chose the social engineering model
of institutional shock therapy offered by the international development
agencies and the most prominent academic economists as advisors. China chose pragmatism after "learning
the hard way" the lessons from using Bolshevik methods to try to
engineer social change (e.g., the Great Leap Forward and the Cultural
Revolution). The difference in results could hardly be
more striking. Since the Chinese
reforms started with government support in the early 1980s, China has had
around 8 percent per capita annual growth [McMillan 2002, 204], perhaps the
largest growth episode in history. Russia using the shock therapy strategy
went the other way. In the first year
of shock therapy (1992), production fell by 19 percent with a further 12
percent and 15 percent in the ensuing two years [McMillan 2002, 202]. In all, the country bottomed out at about a
50 percent drop in GDP. Experts can argue about the interpretation of the
economic statistics, but the demographic trends tell an even more worrisome
story. The population has actually
declined over the 1990s in such a precipitous manner—now for every 100 babies
born, 170 Russians die—that the government projects a 30 to 40 percent drop
by 2050 [Feshbach 2003a, 2003b]. The causality behind these trends is very
hard to disentangle—which is why the side-by-side comparison with China is so
revealing. Since the systemic transition from plan to
market had never happened before in history, it surely called out for a non-dogmatic
approach of trial-and-error and experimentalism, i.e., for pragmatism. Two earlier attempts to socially engineer
revolutionary changes in social, political, and legal institutions—the French
Revolution and the Russian Revolution—had led to disastrous results. The names "Jacobins" and
"Bolsheviks" entered history as labels to describe those who eschew
pragmatism to try to force historical change.
One of the most influential critiques of
the Jacobin methods used in the French Revolution was Edmund Burke's Reflections on the French Revolution: In a
letter intended to have been sent to a gentleman in Paris [1937 (orig.
1790)]. At the beginning of the decade
of the transition (1990s), Ralf Dahrendorf (a
political sociologist and head of the London School of Economics), wrote a
book, Reflections on the Revolution in Europe: In a letter intended to
have been sent to a gentleman in Warsaw [1990], updating Burke's message
for the coming post-socialist transition.
Dahrendorf argued for the transition
"to work by trial and error within institutions" [1990, 41; quoted
in: Sachs 1993, 4]. Neoclassical
economics has become the primary intellectual framework of today's social
engineering. In the early debates
about the transition, a prominent economist and even more gifted
self-publicist, Jeffrey Sachs (then of Harvard and now at Columbia
University), argued that he and other economists already had the
answers. After quoting Dahrendorf, Sachs argued to the contrary in favor of an economics-inspired crash program of
institutional shock therapy. "If instead the philosophy were one of open
experimentation, I doubt that the transformation would be possible at all, at
least without costly and dangerous wrong turns." [Sachs 1993, 5] The French Revolution was not the only
relevant historical example. John
Maynard Keynes described the Russian Revolution and its aftermath in terms
that are surprisingly apt to describe Russia in the 1990s. We have a fearful
example in Russia today of the evils of insane and unnecessary haste. The sacrifices and losses of transition
will be vastly greater if the pace is forced….For it is of the nature of
economic processes to be rooted in time.
A rapid transition will involve so much pure destruction of wealth
that the new state of affairs will be, at first, far worse than the old, and
the grand experiment will be discredited. [Keynes 1933, 245] Instead of taking these lessons to heart,
the Russian reformers of the 1990s became "market bolsheviks"
[Reddaway and Glinski
2001] in their attempt to use the "window of opportunity" to make
the opposite transition from plan to market. There are a number of factors that combine
to yield this view of engineered revolutionary change. The question is not whether or not to make
systemic change. The question is:
given a commitment to basic change—to get to the "other side of an
institutional chasm"—how best to get there? A pragmatic approach would emphasize
incremental step-by-step change starting from where people are. Sachs often used the metaphor "you
can't jump over a chasm in two leaps" but even rather radical
pragmatists would argue that people "need a bridge to cross from their
own experience to a new way." [Alinsky 1971,
xxi]. Another factor leading to social
engineering schemes is the use of simplified abstract models and a lack of
experience in the give and take of practical political experience. James Scott's book [1998] argues
persuasively that states use simplified pictures of static reality to
administer their affairs (e.g., to collect taxes and to staff the army) but
that these simplified pictures lead to disaster when they are the basis for
large-scale social engineering schemes to change societies. Academic economists and global development
bureaucrats have little contact with local realities and thus they tend to be
driven by such simplified cartoon models.
Exiles who have not participated in the give and take of politics in a
country for years if not decades also tend to have cartoon models. It is the combination of power and highly
simplified models of complex social realities that is particularly
lethal. In our case, the power of the
international agencies together with the bureaucratic/academic cartoon models
contributed to the debacles of shock therapy in the FSU. There is a side-theme that might be
explored. Youthful prodigies are
typically in activities based on abstract symbol manipulation (e.g.,
mathematics, music, and chess) where subtle and often tacit background knowledge
obtained from years of human experience is not so relevant (see Scott's
discussion of pragmatic knowledge or "metis"). As economic theory has become more
mathematical, there is now the phenomenon of wunderkind professors in economics (e.g., Jeffrey Sachs, Larry
Summers, and Andrei Shleifer were all
prodigy-professors at Harvard) who are then unleashed—with the compounded
arrogance of youth, academic credentials, and elite associations—into the
real world as ersatz "economic reform experts." Paul Starobin
[1999] contrasts the wunderkinder
of "Big Bangery" with the mature
pragmatists behind the Marshall Plan, and notes the striking difference in
results. When wunderkinder
cast long shadows in the development agencies (e.g., Summers as Chief
Economist in the Bank, Shleifer as manager for USAID's big project in Russia, and now Sachs as a top
'development' advisor to the UN), then it must be late in the day for those
agencies. "Cargo Cult" Economic Reforms: Where is the Road to Cargo?
There is a certain self-reinforcing
vicious circle that leads the Bank and other agencies to try to
"install" inappropriate institutions in developing and transitional
post-socialist countries. Let us begin
with the supply side of this unhappy transaction. People from advanced developed countries
are, in effect, "born on third base and think they hit a triple."9
Such "natural-born development experts" may be graciously disposed
to teach developing countries how to "hit a triple." The developing country should redraft its
laws to describe the institutions seen from the vantage-point of "third
base" [e.g., "like in America"] and then after passing these
new laws, everyone should wake up next morning as if they too were born on
third base. Societies, however, tend to operate on the
basis of their de facto institutions,
norms, and social habits, not their formal laws–and particularly not the
formal laws "pulled out of the air" with little relation to past
experience. When such a gap between
formal and de facto institutions is
introduced, then the bulk of the population can rarely "jump over the
chasm" to suddenly start living according to the new formal laws–so the
rule of law is weakened. Semi-legal
("gray") and illegal ("black")
activities become more prominent as the connection between legal and actual behavior is strained to and beyond the breaking point.
The advice from the natural-born development experts thus becomes more part
of the problem than part of the solution.
More relevant institutional information could be provided by people
who were only on first or second base since they might actually know how to
hit a single or a double. Now consider the demand side—the demand
for impossible "overnight" jumps to institutions copied from
technologically advanced developed countries.
The people and the politicians of the developing and the transition
economies are constantly bombarded by the mass media with images of life in
the "First World." They want
to get there "tomorrow" (if not "yesterday"). Consultants
and academics from elite universities with no real development experience
badger the government officials to have the political courage and will to
undertake a shock-therapy-style change in institutions, to jump over the
chasm in one leap (i.e., jump directly to third base)—as if such institutional change were actually possible. Those locals who caution against radical
leaps are dismissed as only trying to protect their privileges and
"rents" from the past regime.
"How dare you think you know better than professors from Harvard!"10 The idea is to "escape the past,"
not to study the past to better develop incremental change strategies. If the scientific experts from the First
World give this advice, how can the benighted officials from the Third World
or the post-socialist countries resist?
All people have to do when they wake up the next morning is to start
behaving according to the new laws drafted by the experts! For instance in a southeast European
post-socialist country that had been particularly isolated in the past, government
officials wanted to jump to modern corporations "like in
Europe." This was an example of
an "iceberg" institutional reform; the "above the
water-line" laws could be quickly changed but the problem was the
"below the water-line" long-term changes in behavior.11 They located a European foundation that was
willing to fund an "adaptation" of the corporate laws of a west
European country. The new draft laws
were quickly passed by the Parliament so that the government officials and
legislators could brag that they now had "European corporate
statutes." All they needed now
was a few lawyers, a few judges, a few accountants, a few regulators, a few
business people, and a few decades of institution-building experience so that
the new statutes could actually be used.
Any attempt to get the country to adopt laws similar to those in neighboring countries that had incrementally evolved
towards a market economy for several decades was angrily rejected. "Why do you try to get us to use these
second-best or third-best laws when we can adopt the best European
statutes?" Surely the
natural-born development experts from the First World want to provide the best laws for their clients? Thus the government officials demand that
they do not want some second-best model; they want the "very best"
for their people—like in the advanced countries. The third-basers
in the international aid bureaucracies then can reap the seeds they have sown
by "listening to the clients" and "responding to the clients'
desires" by trying to set up "public joint stock companies" in
Albania, a "stock market" in Mongolia, "defined contribution
pension plans" in Kazakhstan, and "modern self-enforcing corporate
laws" in Russia.12
Thus the circle is completed; supply responds to demand in a self-reinforcing
vicious circle to waste untold aid resources on the attempted instant
gratification of a non-evolutionary "Great Leap Forward" to First
World institutions.13 The failed attempts at utopian social
engineering might be usefully viewed from an anthropological
perspective. Many of the First World
institutions such as "The Stock Market" have a certain totemic or
'religious' significance. The Wall Street mentality found in the post-socialist
world is reminiscent of the cargo cults that sprung up in the South Pacific
after World War II.14 During the war, many of the glories of
civilization were brought to the people in the southern Pacific by
"great birds from Heaven" that landed at the new airbases and refueling stations in the region. After the war, the great birds flew back to
Heaven. The people started "cargo
cults" to build mock runways and wooden airplanes in an attempt to coax
the great birds full of cargo to return from Heaven. Post-communist countries, with hardly a
banking system worthy of the name, nonetheless opened up Hollywood storefront
"stock exchanges" which were kickstarted
by the listing of shares in almost all companies in a voucher privatization
program. Government officials in East
Europe, the former Soviet Union, and even Mongolia proudly showed the mock
stock exchanges, complete with computers screens and "Big Boards,"
to western delegations of Bank, Fund, and USAID
officials (with enthusiastic coverage from the western business press) in the
hope that finally the glories of a private enterprise economy will descend
upon them from Heaven. An earlier
generation of misguided development efforts left Africa dotted with silent
"white elephant" factories, and the present generation of
revolutionary reforms in the post-socialist world left the region dotted with
dysfunctional "cargo cult" institutions—the foremost among them
being the largely totemic stock markets.
|