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“Fixing” Failing States—When Hubris Gives Way to Reality

July 6, 2010

This guest post is by Rachel Mathers, a West Virginia University Economics PhD. It is a follow up to Claudia Williamson’s post from last week, “Let Fake States Fail,” which was part of our Culture and Secession series.

Though development projects are often lauded as critical for improving human welfare and alleviating human suffering, one nuance of development goals that must be addressed is the relevant alternatives to the proposed project.  One such alternative, infrequently considered as a realistic option, is letting failing states fail rather than attempting to fix them.  In spite of the best intentions on the part of foreign aid agencies and their counterparts, what is best for human well-being may be no intervention at all, especially in cases where a predatory government rules, making outside aid subject to confiscation by a corrupt and malicious government.  In such cases, instead of helping those worse off, outside “fixes” fund a government that perpetuates the problems aid is intended to fix.

Christopher Coyne and Matt Ryan describe this scenario in an aptly titled paper: “With Friends Like These, Who Needs Enemies?”  They note that “a consideration of the world’s worst dictators indicates that world leaders, even while publicly condemning these dictators’ gross violation of basic civil, human, and political rights, have been generous with foreign aid…[that] allows these dictators to consolidate their positions, remain in power, and sustain their brutal and corrupt methods.”  Sudan’s al-Bashir and Zimbabwe’s Mugabe are two of the most notorious examples they cite.  When foreign aid is filtered through governments known to violate the basic human rights of their citizens, why should we expect these governments to act any differently?  This is akin to doling out money to the school bully to purchase band-aids for his victims.

In spite of the conundrum associated with allocating aid to corrupt governments in the hopes of increasing the welfare of those worse off, we must consider what is achievable through such aid in order to compare the trade-off between letting weak states fail and propping them up with foreign funds.  Jeffrey Sachs, one of the proponents of the Millennium Development Goals, argues that increasing the income in these states will allow them to invest in better institutions and infrastructure comparable with governments that respect human rights.  However, when outside investments are made in a country currently under corrupt rulership, what incentive do these rulers have to divert funds into such institutions that would, ultimately, strip them of some of their power?

Conversely, what would happen if we refused to give aid to governments that abuse human rights?  Given that we expect expropriation by the government to be the norm, it may be the case that the corrupt government is made much worse off by the lack of foreign aid than those we were intending to help with the aid.  In fact, without outside aid, a government that continually robs its citizens and violates their rights will soon find that there is nothing left to plunder and no means by which to extract further rents from its citizens.  In other words, the government will crumble from a lack of resources.  While anarchy may, at first consideration, seem like an unstable alternative, it can be a welcome change in countries with better informal institutions than formal institutions.

For example, if local customs are founded on trust and mutual respect, even if only within like groups, these cultural norms will yield more prosperity than the formal institutions perpetuated by an authoritarian dictator who usurps power and income.  Even small-scale trade between neighbors is better for human welfare than the alternative.  Relying on these informal institutions that foster trade, one can envision a more hopeful outlook for the future of these societies than the outlook faced under the former corrupt government.  Somalia, as pointed out in Claudia Williamson’s blog post and in Peter Leeson’s work, is one current example of a country where no central government is better than the central government that existed before.  In other words, given the relative trade-off between a stable but corrupt government or no government at all, there are cases in which the latter proves to be the better choice.

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