Aid, NGOs, and Entrepreneurship In Africa

Recently I had the pleasure of meeting Michael Strong and Magatte Wade, and somewhere in the freewheeling conversation Magatte mentioned the controversy she started with a June 19th Huffington Post article Jeffrey Sachs’ Misguided Foreign Aid Efforts.  It sounded like an entertaining skewering of out-of-touch NGOs and academics, so I looked it up, and indeed it was:

On a brochure for a tour of Jeff Sachs’ Millenium Village in Rwanda, managed by one of Sachs’ Columbia University colleagues, Rule #1 is “Please do not give anything to the villagers — no sweets, cookies, empty water bottles, pens or even money.” While I’m sure the rule is well-intentioned, it captures perfectly the revolting condescension that I feel from the Millenium Villages project. Unlike the ignorant elderly woman, celebrated professors at Columbia University cannot be excused through their ignorance. When highly educated people can objectify us with a “Don’t feed the animals” sign, the only explanation is a blinding arrogance. These people are so sure that they are noble for helping the ignorant chimps, that they hadn’t even noticed just how humiliating the expression is.

Rule #1 goes on to explain the rationale for the rule, “Our desire is to encourage a culture of entrepreneurship and service provision rather than handouts.” Again, I’m completely sympathetic to the encouragement of entrepreneurship, but the situation is entirely ludicrous — American professors spending tens of millions of dollars telling villagers how they should live their lives, so that American tourists can go and watch the new feature at the zoo in which the African natives are doing just as they are told by the American experts — with the careful warning to the tourists not to contaminate the zoo display by feeding the animals. This is how Sachs supports African entrepreneurship?

As an African entrepreneur living in the U.S., just over a year ago I was approached by a representative of the Millenium Villages project. As someone who cares about Africa and who is eager to eliminate African poverty through enterprise, I was happy to meet with this person to see what we might be able to do together. Imagine my surprise when, rather than propose some kind of professional business partnership, he expected me to open up my connections so that they could sell the agricultural and artisanal products being produced in their villages. First I was stunned by the fact that they had produced goods before thinking about how to market them, something a real entrepreneur never does.

…

In my first company, Adina World Beverages, I had spent years traveling to trade shows and retail stores in order to get our beverages into Whole Foods Market, Wegmans, and dozens of other high-end retailers. As a consequence of many thousands of miles and hundreds of hours of relationship building, I had gradually built up an effective network for selling our products. I had gotten our products into retailers by paying close attention to market trends as well as to the idiosyncrasies of various buyers both retail and wholesale. Moreover, even before hitting the pavement to sell product, I had designed the entire company concept based on a prior identification of a market niche that I believed I could fill. My success at selling on the ground was directly linked to my identification of a niche prior to creating the company. I knew that the cultural creative demographic would relate to both the product and story that I was promoting.

By contrast, Sachs had begun with a self-important “save the Africans” concept, obtained tens of millions in philanthropic donations for his projects ($50 million from Soros, $15 million from Gates, etc.) and then gone on to carry their White Man’s Burden. Only after spending gobs of other people’s money did it occur to them that “Oh, maybe we need to find a way to sell the products that we are encouraging our villagers to produce.” I had seen this story before. When I began training Senegalese women to grow organic hibiscus and promised to buy it from them, initially they laughed at me, because countless NGOs had helped them grow hibiscus in the past, only to have it rot after harvest because there were no buyers for their product. The women were delighted to find that because I had, in fact, identified a niche and was an effective saleswoman, the hibiscus had found a market. But NGOs and academics rarely think in these terms.

This reminded me of Jim Rogers‘ book Adventure Capitalism, which I recently read.  In it, he becomes the first person to drive around the entire world, visiting 100+ countries in 2 years.  Rogers is, shall we say, less than sanguine about aid and NGOs:

Even in countries with no roads to speak of, Mercedes service is available – often to the exclusion of things like food – thanks to all the US foreign aid, the IMF, and World Bank money being shipped in.  It is no secret that this money is aimed at nourishing only those corrupt enough to get their hands on it, while at the same time fattening the bureaucrats on both sides of the transaction who diligently work the trough.  And none of them is driving a Chevy.

I knew much of this from my last trip.  The upcoming trip, especially as it took us through Africa, would be an eye-opening education into the workings of the latest foreign aid scam: the nongovernmental organization, or NGO.  As an American taxpayer, I would be amazed to discover that a lot of the money we send to these countries goes to support Mercedes and BMW dealers and various Swiss bankers.

Later:

After cocoa, the commodity produced in greatest abundance in the Ivory Coast is to be found in the commercial capital, Abidjan, one of the more cosmopolitan cities in West Africa: NGO bureaucrats.  They grow here in enormously high concentration, even for Africa.  They and their like have been directing Africa’s destiny for centuries.  One might wonder why so many national boundaries in these parts consist of straight lines.  In Germany in 1884, at what was called the Congress of Berlin, the European powers came together and divided up Africa.  They paid no attention to religious, ethnic, linguistic, tribal, national, or historical differences – the Ivory Coast, for example, is divided between a majority Muslim population in the north and those who hold to indigenous beliefs and Christianity in the south, explaining why peace in Africa may be far away.  And why there will always be work for Western bureaucrats.

Rogers’ plan for Africa:

I believe Africa still holds promise.  And here, I think, is how that promise can be realized.  Forgive all the debt.  Right now….However, part of the deal would be no more foreign aid…The people of Africa, no longer relying on handouts, would learn to fend for themselves…Presently, as we had seen in half the world, most foreign aid winds up with outside consultants, the local military, corrupt bureaucrats, the new NGO administrators, and Mercedes dealers.  There are Mercedes dealers in places where there are not even roads.

One Sudanese entrepreneur, applying his talents to making easy money rather than building a productive enterprise, worked the corrupt NGO system perfectly.  It was a “known fact” that slavery was rampant in northeast Africa, especially Sudan.  He and a Swiss NGO found each other, and he agreed to buy slaves for the charity, which would then set them free.  By the time the Swiss figured out what was happening – he was going to his friends and relatives and “buying” them, giving them good stories to tell the charity about their enslavement – the Swiss were out $20 million.

This is not just waste, the effect of aid is actually negative.  First, there is the obvious problem with putting a nation on the dole and encouraging its entrepreneurs to learn to beat the system instead of creating wealth.  As Easterly puts it:

The real problem is that patronizing attitudes towards the African beneficiaries of the MVs follow naturally from the ideas that inspire the MVs – that the poor are helpless victims and it is up to foreigners with superior expertise and funds to rescue them. Condescension towards Africans is both offensive AND a sign of a counterproductive approach to development.

Second, as we can learn from the work of Bruce Bueno de Mesquita, aid maintains corrupt regimes.  Russell Roberts summarizes:

In the most recent podcast at EconTalk, Bruce Bueno De Mesquita and I talk about what makes dictators and democratically elected leaders tick. According to Bruce’s worldview, every leader, no matter what the system, tries to stay in office and prosper. The relentless application of this simple idea turns out to have very interesting implications for foreign aid, the relief of poverty around the world and about a thousand other things. Bruce has a big brain with a lot of interesting things to say. It’s a very long podcast (about an hour and a half) and it opens with a fairly intense discussion of the theories in Bruce’s book. From there he talks about a wide range of applications.

Listen to the podcast to learn more, but briefly: even dictators have people they answer to (Bruce Bueno terms this “the selectorate“), so dictators need to be able to hand out favors to stay in power.  The spigot of aid is a great, steady source of such favors, and thus serves to keep dictators in power.

If you are a new reader you may find this negative impact of aid surprising, but regular readers will see clearly how this fits into our ideas.  Wealth comes from competitive governments producing effective institutions in the course of competing for citizens and foreign capital.  Aid does not make government more competitive, it makes it less competitive, by giving dictators a revenue source they can depend on no matter how poor their economy and business climate.  (Perversely, the aid may be more dependable the worse their economy and business climate!)

Aid is the reverse of bloodless instability – it Lets A Hundred Dictators Tighten Their Grips, strengthens existing corrupt institutions, and makes institutional resets harder.  Which is why we instead propose “aid” such as Strong’s Free Economic Zones or Romer’s Free Zones, which increase competition for effective institutions, offer local institutional resets, and encourage entrepreneurship, rather than dependence.  That’s the Thousand Nations way to truly be progressive.