POLS 4133 International Political Economy Debate Paper Guidelines Spring 2017 The goal of the debate papers is to evaluate and critique major policy approaches to IPE topics. Therefore, you will evaluate the information on a contentious issue and then convince the audience that your opinion is valid and defensible. Your job is to take one side of the argument and then persuade your audience that the evidence validates your claims and refutes any counterclaims. Guidelines for the papers are as follows: 1. Students may not select alternate topics. Specific questions for each debate will be given. 2. Each paper will be a maximum of three pages of text in length, not including a cover page or a bibliography. Your text should be no more than 3 pages, double-spaced, with one-inch margins, and 12-point Times New Roman font. Your paper will be organized to include: • An introductory paragraph that describes your thesis/position statement on the topic. Your position should be clear and based on facts rather than belief or opinion. • At least two to three paragraphs giving relevant evidence to support your position. Each paragraph should focus on only one point of evidence. Paragraphs are typically organized from weakest point to strongest point. • At least one paragraph that provides a refutation of the most significant counterargument to your position. Be sure to say why the counterclaim is not supported based on facts or false logic in the claim itself. • At least one paragraph concluding your paper. To help you organize the information in your papers, you might wish to consider the following questions as you read the sources and gather your evidence. • What is the author’s main argument? What research question is the author trying to answer? What are the assumptions, explicit and implicit, upon which the author’s argument is based? • What are the strengths and weaknesses of the author’s analysis? Can you think of an alternative explanation for the author’s evidence? • Do you agree or disagree with the author? How would you approach a similar puzzle? What questions still need to be addressed? • What advice would you give to policy makers based on this reading? 3. Students must use the readings provided to form the basis of their evidence. Students may supplement these readings with additional evidence taken from credible sources or 1 peer reviewed academic research. news Students must cite all sources with in-text citations and include full citations in a bibliography. 4. Students are expected to submit papers that have been carefully edited and are free from common mistakes in spelling, grammar, and formatting. In grading your papers, I will be looking for evidence that you (a) clearly explain your thesis, (b) provide strong support of your thesis using evidence from the course, (c) provide a discussion of at least one counterclaim, (d) use concepts and themes from our course, and (e) follow writing conventions. You will also receive credit for (f) relevant and engaging class participation on the day of the debate. NOTE: Failure to follow these guidelines will result in a reduction of points awarded. 2 Muhammad Yunus, founder and managing director of the Grameen Bank, was awarded the Nobel Peace Prize in 2006 for developing the concept of microcredit as “an important instrument in the struggle against poverty.” He is the author, with Karl Weber, of Creating a World Without Poverty (Public Affairs, 2008). Economic Security for a World in Crisis Muhammad Yunus Capitalism is in serious crisis. Even so, no one is calling for it to be abandoned in favor of some other system, such as socialism, because everybody is convinced that, with all its faults, capitalism is still the best economic system known to humanity. As every student knows, Adam Smith provided the conceptual framework of capitalism. It has been improved and elaborated throughout its long history, and though the world has changed enormously, the fundamentals described by Smith have remained largely intact. The need for reviewing the basic structure of capitalism has seemed appropriate on many occasions, but never so clearly as it is today. Indeed, in light of the current global economic crisis, there is strong support for a major overhaul of the system. In my view, one major change in the theoretical framework of capitalism is necessary—a change that will allow individuals to express themselves in multi-dimensional ways and address the problems left unsolved or even intensified by the existing conceptual framework. And although my proposal may be viewed as a significant change in the structure of capitalism, it is actually very consistent with what Adam Smith elaborated so brilliantly in his Theory of Moral Sentiments in 1759. Some 250 years later, however, © 2009 World Policy Institute some of Smith’s lessons still have not been learned adequately. Until the current economic crisis, observers around the world shared a remarkably optimistic view of the future of civilization. In the early years of the twentyfirst century, we were living in a time of unparalleled prosperity, fueled in part by revolutions in knowledge, science, and technology. This prosperity had dramatically improved the lives of many; yet billions of people still suffered from poverty, hunger, and disease. In the developed world, a handful of economists and social scientists had been clamoring to draw attention to their plight. Many people, however, took a complacent view, assuming that the spread of free markets would bring eventual prosperity even to the world’s poorest peoples. The twenty-first century began with high hopes and idealistic dreams, encapsulated in the United Nations initiative known as the Millennium Development Goals. These eight goals, to which the international community pledged its support, included several economic objectives (such as eradicating extreme poverty and developing a global partnership for development) as well as other humanitarian objectives (such as reducing gender inequality and achieving universal primary education). Taken togeth5 er, these goals would carry us a long way toward the broader objective of greatly reducing the gulf between the rich nations of the global North and the poor nations of the global South. Many of us were convinced that the coming decades would bring unprecedented wealth and prosperity, not just for a few, but for all people on this planet. Now the mood of optimism has changed. Several major crises that few people foresaw—the financial crisis, the everworsening environmental crisis, and crises over food and oil prices—have converged to bring even greater misery and frustration to the world’s bottom three billion people. And these crises have also driven many in the developed world to question the solidity of the foundations on which they had assumed their future security and prosperity were being built. A Rude Awakening The crises we face in food, energy, and the environment have a host of immediate economic and physical causes. But they all have one thing in common. They all reflect the inadequacy of the current economic system. In each case, we confront social problems that cannot be solved solely by the free market as it is traditionally understood. On top of all this has come the biggest crisis of all. In the past few months, we’ve witnessed perhaps the greatest evaporation of wealth in history. The crushing collapse of large sectors of the global financial system, first in the United States, then in other nations of the developed world has doomed giant financial institutions, bankrupted major manufacturing firms, and nearly shuttered entire domestic industries, now kept alive only with unprecedented government bailout packages. Many reasons have been suggested for this historic economic collapse: excessive greed in the marketplace, the transformation of investment markets into gambling casinos, and the failure of 6 regulatory institutions. But one thing is clear. The financial system has broken down because of a fundamental distortion of its basic purpose. Credit markets were originally created to serve human needs—to provide business people with capital to start or expand companies. In return for these services, bankers and other lenders earned a reasonable profit. Everyone benefited. In recent years, however, the credit markets have been distorted by a relative handful of individuals and companies with a different goal in mind— to earn unrealistically high rates of return through clever feats of financial engineering. They repackaged mortgages and other loans into sophisticated instruments whose risk levels and other characteristics were hidden or disguised. Then they sold and resold these instruments, earning a slice of profit on every transaction. All the while, investors eagerly bid up the prices, scrambling for unsustainable growth and gambling that the underlying weakness of the system would never come to light. In time, the inevitable happened. The house of cards came tumbling down. Because of the degree of globalization in financial markets, this economic tsunami has spread across the world. Stock markets around the globe have suffered losses in the billions, even trillions of dollars. But the rich will not be the most affected by this financial crisis; rather it will be the bottom three billion people on this planet who will truly suffer, despite the fact that they are not responsible in any way for creating this disaster. While the rich will continue to enjoy a privileged lifestyle, the poor will face job and income losses that, for many, will make the difference between life and death. The impact is already beginning to be felt. As levels of global trade decline, exports from the developing nations are down. Foreign direct investment in development WORLD POLICY JOURNAL • SUMMER 2009 by the wealthy nations is expected to drop by 20 percent this year. Funds for lending have dried up, as have aid flows and remittances from citizens working abroad. We have only seen the beginning of these crises. We are in for a long and painful period ahead. The combined effects of the financial, food, energy, and environmental crises will continue to unfold in the coming months and years, affecting the security of the bottom three billion with particular force. One example: the World Bank has estimated that unless the financial crisis is quickly resolved, an additional 1.4 million to 2.8 million children in the developing world will die of malnutrition between 2010 and 2015. The troubles of the world’s poorest will have an impact on those in developed nations, too. Social unrest, border clashes over scarce resources, increasing instances of state failure, and vast migrations by populations desperate for relief from poverty and environmental disaster will create political and military hot spots around the globe that will threaten world peace and strain the budgets of established and emerging powers struggling to cope with these challenges. Economic Security for a World in Crisis Over the past several months, world leaders have been particularly focused on financial emergencies. This is quite understandable. But it should not be seen as a problem of high finance only. This narrow view of the financial crisis is likely to intensify our global social and political problems. The human aspect of the financial crisis must be integrated into a holistic solution to the problems that we all face. So far, governments have kept themselves busy coming up with super-sized bail-out packages for the institutions responsible for creating the financial crisis, yet little is being done to bail out the most vulnerable victims. Still, the decision in early April by the leaders of the G-20 Summit to “recapitalize” the International Monetary Fund (IMF) to the tune of $750 billion is a welcome start. These funds will enable the IMF to help stabilize threatened banks in troubled regions of the world, such as eastern Europe. In a global crisis like the one we face today, relief to any region helps the whole world by reducing the chance that economic collapse will continue to spread. Yet, in the face of all this dire news, it is possible that this mega-crisis could be a 7 mega-opportunity—to redesign our existing economic and financial systems so that they can become the foundations for lasting global security. Capitalism: a Half-Built Structure Even if we can overcome the immediate crises we face, we will still be left with fundamental questions about the effectiveness of capitalism in tackling such unresolved problems as persistent poverty, lack of access to health care and education, and epidemic diseases. In my view, the theoretical framework of capitalism that is widely accepted today is a half-built structure—one that prevents Adam Smith’s “invisible hand” from operating as he believed it should, transforming the pursuit of individual gain into general social benefit through the workings of the marketplace. In a sense, we have chosen to disregard half of Smith’s message. His landmark book, The Wealth of Nations, has drawn all the attention, while his equally important Theory of Moral Sentiments has been largely ignored. The present theory of capitalism holds that the marketplace is uniquely for those who are interested in profit only. This interpretation treats people as one-dimensional beings; but people are multi-dimensional, as Adam Smith saw so clearly two and a half centuries back. While we have a selfish dimension, we also have a selfless dimension. The prevailing theory of capitalism, and the marketplace that has grown up around the theory, makes no room for the selfless dimension of people. If the altruistic motivation that exists in people could be brought into the business world, there would be few problems we could not solve. Smith took the view that people are born with a moral sense, just as they have inborn ideas of beauty or harmony. Our conscience tells us what is right and wrong. That conscience is something innate, not something given to us by lawmakers or by 8 rational analysis. And to bolster it we also have a natural tendency to care about the well-being of our fellow men and women, an apparently universal feeling which Smith calls “sympathy.” Between them, these natural senses of conscience and sympathy ensure that human beings can and do live together in orderly, beneficial social organizations. With these ideas in mind, we can see that Smith’s Wealth of Nations has generally been misinterpreted. His thesis in that book is generally summarized as an argument that all will be well if people are allowed to follow “self-interest,” which has been equated with selfishness and profit maximization. But with human beings as they are—driven by conscience and sympathy as well as the desire for profit—“self-interest” includes both profit maximization and social contribution. The Theory of Moral Sentiments, which attached great importance to justice and other moral virtues, is thus an important corrective to the widespread but simplistic understanding of Smith’s intentions in The Wealth of Nations. However, the present structure of economic theory does not allow this latter dimension to play out in the marketplace. In the absence of such an opportunity, people have tended to express their selflessness through contributions to charities. Charitable efforts have always played a role in our society and economy. They are noble, and they are needed. But business has a greater capacity than charity to innovate, to expand, and to reach more and more people through the power of the free market. If the efficiency, competitiveness, and dynamism of the business world can be harnessed to deal with specific social problems, the entire world will be a much better place. Imagine what we could achieve if talented entrepreneurs and business executives around the globe devoted themselves to goals such as ending malnutrition, providing shelter for the homeless, and eradicating disease. WORLD POLICY JOURNAL • SUMMER 2009 With this in mind, I have proposed a new type of business that would operate in the same market along with existing profitmaximizing enterprises. I call these new entities “social businesses,” because they exist for the collective benefit of others. Missing Element: Social Business A social business is one whose purpose is to address and solve social problems, not to make money for its investors. It is a nonloss, non-dividend-paying company. The investor can recoup his investment capital, but beyond that, no profit is to be taken out as dividends by the investors. These profits remain with the company and are used to expand its outreach, to improve the quality of the product or service it provides, and to design methods to bring down the cost of the product or service. In effect, social business will represent a third economic sector alongside the free market and government. It is important to distinguish the concept of social business from the well-known idea of “socially-responsible business.” The latter refers to traditional for-profit companies that choose to modify their business activities so as to promote social goals, or, at least, to minimize the social harms they cause. Socially-responsible businesses may use environmentally-friendly methods, provide generous benefits to employees and their families, and donate a portion of their profits to worthwhile causes. Today, many companies try to promote themselves as being socially responsible, and specialized investment funds exist to channel money toward such companies and away from others that are polluters, abusers of their employees, or exploiters of the poor. The difference between a social business, “ Economic Security for a World in Crisis as I define it, and a socially-responsible business is that, for the latter, profit-maximization remains the primary goal. When the goal of increasing profit is seen as conflicting with the goal of helping society, the managers of the socially-responsible business must favor the pursuit of profit. During bad economic times, a socially-responsible business is likely to cut back on its charitable giving and cut corners on its other social commitments. A social business cannot Business has a greater ability than charity to innovate, expand, and reach people through the power of the free market. ” make such a choice. Its whole reason for existing is to promote social benefits. Therefore, there can be no conflict between this goal and the goal of earning a profit, which the social business doesn’t recognize at all. The concept of social business crystallized in my mind through my experience with Grameen—a family of companies, 25 in all, founded by Grameen Bank over the past 27 years in an attempt to address different problems faced by the poor in Bangladesh. These companies vary widely in their goals and business models. Grameen Shakti, for example, produces and sells lowcost, renewable energy systems, including solar panels and bio-gas converters that turn otherwise valueless farm wastes into cooking fuel. Grameen Health Care runs health clinics and provides affordable health insurance to rural families. Grameen Fisheries and Livestock operates fish farms and provides vaccination and veterinary services to help small farmers in Bangladesh improve profitability. Grameen Bank itself is a social business. Owned by poor people, mostly women, who are its depositors and borrow9 ers, it pays part of its profits back to the owners in the form of dividends, and invests the rest in expanding services to more villages and families throughout the country. All of the revenues that flow through Grameen Bank go to help the poor in one way or another. In each case, the companies address a specific social need. We designed these businesses to be both self-sustaining and expanding, but only to ensure that the products or services they provide can reach more and more of the poor, on an ongoing basis. Any surpluses generated by these companies are reinvested to expand operations, rather than enrich investors. This is the model of a social business. The concept of social business got international attention when Grameen Bank launched a joint venture with Danone, a multinational company headquartered in France. In February 2006, Grameen teamed up with Danone to bring nutritious fortified yogurt to the undernourished children of rural Bangladesh. The aim of this social business was to fill a nutritional gap in the diet of these children. Today, we sell the yogurt to poor families at an affordable price, charging just enough to make the company self-sustaining. In the process, we stimulate the local economy, since the yogurt is distributed door to door by a small army of village women who earn a commission on each cup of yogurt they sell. Furthermore, all the milk and other ingredients in the yogurt are purchased from local suppliers, such as small dairy farmers in the vicinity of the factory. Beyond the return of the original investment capital, by agreement, neither Grameen nor Danone will ever make any money from this venture. We have one yogurt plant already operating in Bangladesh and, in time, hope to have 50 such plants throughout the country. We also have built an eye-care hospital that operates along social business principles and a joint venture with Veolia of France to 10 deliver safe drinking water to rural villages. This partnership is building a small watertreatment plant to bring clean water to 50,000 villagers in an area of Bangladesh where the existing water supply is highly contaminated with arsenic. We will sell the water at an affordable price solely to make the company sustainable, but no financial gain will come to Grameen or Veolia. The success of these enterprises has encouraged other companies to come forward and partner with us to set up new social businesses. Teach a Man to Fish Some people are still skeptical, however, when I describe the concept of social business. “Who will create these businesses?” they ask. “Who will run these businesses? And, more important, why would anyone devote time, energy, and money to projects with no hope of personal gain?” To begin with, there is no dearth of philanthropists in the world and no dearth of donor countries giving grants. People give away billions of dollars every year, as do donor countries. But imagine if, instead of those billions of dollars going to supply one-time aid, they could be used by social businesses to help people. The money would then be recycled again and again, and the social impact could be that much more powerful. In the same manner, money allocated by companies to corporate social responsibility projects could easily go into developing social businesses. Each company could create its own range of social businesses or pool donations from many sources in Social Business Funds (SBF), comparable to private equity pools that operate in the forprofit world. There’s a danger here, of course, given the lessons we’ve learned from the global financial crisis. But since investment in an SBF would be driven by social objectives rather than profit, it is reasonable to assume that rampant market ills would be less likely to affect them. WORLD POLICY JOURNAL • SUMMER 2009 ©Karl Weber Waiting for a Grameen shareholders’ meeting. The opportunities for launching social businesses are limitless. Even profit-maximizing companies can be social businesses when owned by the poor. This constitutes a second type of social business. Grameen Bank falls under this category of social business. It is owned by its poor borrowers. The borrowers buy Grameen Bank shares with their own money, and these shares cannot be transferred to non-borrowers. A committed professional team does the day-to-day running of the bank. Every year, dividend checks are sent to the borrowers, representing their share of the bank’s profits. What I would like to propose here is that bilateral and multilateral donors support economic development by creating social businesses of this type. When a donor wants to give a loan or a grant to, say, build a bridge in a recipient country, it could create instead a bridge-building company owned by the local poor. A committed management company would be given the reEconomic Security for a World in Crisis sponsibility of running the company. Following the established model, part of the profits earned would go to the local poor as dividends, the remainder towards building more bridges. Indeed, that bridge would likely be the first of many. An array of infrastructure projects, such as roads, highways, airports, seaports, and utility companies, could be built in this manner. Because the social business model demands that the company generate ongoing revenues through its activities—for example, by charging tolls or usage fees on its bridges (usually with special lower rates for the poor)—the initial grant should lead to a continuing, ever-replenished revenue stream, ultimately producing more social bang for the donor’s buck. Currently, inertia is the problem. Once the concept of social business is included in economic theory and taught in business schools around the globe, thousands of people will come forward to invest in social 11 businesses. To connect investors with social businesses, we will need to create a social stock market to trade shares of these entities. An investor would come to this stock exchange to find a social business, which has a mission to his or her liking—just as someone who wants to make money goes to the existing stock market. Investors motivated by the desire to promote particular social goals would use this market to channel funds into social businesses that promote these ends. The values of shares in specific social businesses would rise and fall along with the results, both financial and social, of the underlying businesses. Social businesses that gain a reputation for producing powerful social benefits—operating schools for atrisk kids in poor neighborhoods, for example, or providing affordable, high-quality health care to families in low-income communities—while also generating strong, sustainable revenue flows through astute, creative management will become the equivalent of blue-chip stocks, attracting abundant investment money. To help a social stock exchange perform properly, we will need to create ratings agencies, standardization of terminology, definitions, impact measurement tools, reporting formats, and new financial publications (perhaps even The Social Wall Street Journal?) and electronic media to provide up-to-the-minute information about news and financial developments affecting social businesses. Worst Crises, Best Opportunities The crises we face offer us all a valuable lesson in the inter-connectedness of the human family. In a world where economic development in the South is driven, in part, by stable financial markets and thriving economies in the North, the fate of Lehman Brothers and of poor sisters working in the garment factory in Bangladesh are linked. 12 In a world where agricultural markets are global, the fate of a rice farmer in Bangladesh, a maize farmer in Mexico, and a corn farmer in Iowa are all intertwined. And while the past few decades may have benefited a few at the expense of many others, in the long run, only policies that allow all the peoples of the world to share in the progress will produce long-term security for anyone. Poverty is not created by poor people; it is an artificial imposition on individuals and families with fewer resources than others. Poor people are endowed with the same unlimited potential for creativity and energy as any human being in any station of life, anywhere in the world. It is only a question of removing the barriers faced by the poor so that they can unleash their creativity and intelligence in the service of humanity. They can change their lives—if only we could give them the same opportunities that we have. Social business and creative, sympathetic economic actors—across all sectors— are the quickest avenue to this end. Poverty does not belong in civilized society. It belongs in a museum where our children and grandchildren will go to see what inhumanities people had to suffer, and where they will ask themselves how their ancestors allowed such a condition to persist for so long. We’ve accomplished so much thus far: eradicating diseases, outlawing slavery, raising crop yields dramatically. Eliminating poverty is our next great challenge. Now is the time to face these deeply linked global, economic, and social crises in a well-planned and well-managed fashion. This is a unique historical moment. From the ashes a new society can be built, and the present crises allow us the opportunity to design and build a new economic and financial architecture so that this type of catastrophe will never recur. Only by achieving this can we lay a solid foundation for the security and peace of future generations. • WORLD POLICY JOURNAL • SUMMER 2009 T H E W I L S O N Q U A R T E R LY The Micromagic of Microcredit The millions of tiny loans microcredit banks make to the world’s poor do not work the miracles some advocates claim. But like the Wizard of Oz, microcredit does not need to be magic to do a great deal of good. BY KAROL BOUDREAUX AND TYLER COWEN Microcredit has star power. In 2006, the Nobel Committee called it “an important liberating force” and awarded the Nobel Peace Prize to Muhammad Yunus, the “godfather of microcredit.” The actress Natalie Portman is a believer too; she advocates support for the Village Banking Campaign on its MySpace page. The end of poverty is “just a mouse click away,” she promises. A button on the site swiftly redirects you to paypal.com, where you can make a contribution to microcredit initiatives. After decades of failure, the world’s aid organizations seem to think they have at last found a winning idea. The United Nations declared 2005 the “International Year of Microcredit.” Secretary-General Kofi Annan declared that providing microloans to help poor people launch small businesses recognizes that they “are the solution, not the problem. It is a way to build on their ideas, energy, and vision. It is a way to grow productive enterprises, and so allow communities to prosper.” Many investors agree. Hundreds of millions of dolKarol Boudreaux is a senior research fellow at the Mercatus Center at George Mason University. Tyler Cowen is a professor of economics at George Mason University and author of Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist (2007). lars are flowing into microfinance from international financial institutions, foundations, governments, and, most important, private investors—who increasingly see microfinance as a potentially profitable business venture. Private investment through special “microfinance investment vehicles” alone nearly doubled in 2005, from $513 million to $981 million. On the charitable side, part of microcredit’s appeal lies in the fact that the lending institutions can fund themselves once they are launched. Pierre Omidyar, the founder of eBay, explains that you can begin by investing $60 billion in the world’s poorest people, “and then you’re done!” But can microcredit achieve the massive changes its proponents claim? Is it the solution to poverty in the developing world, or something more modest—a way to empower the poor, particularly poor women, with some control over their lives and their assets? On trips to Africa and India we have talked to lenders, borrowers, and other poor people to try to understand the role microcredit plays in their lives. We met people like Stadile Menthe in Botswana. Menthe is, in many ways, the classic borrower. A single mother Wi n t e r 2 0 0 8 ■ Wi l s o n Q ua r t e r l y 27 Microcredit 90 percent in Asia to less than a third in the Middle East. While 70 percent of microcredit borrowers are in Asia, the institution has spread around the world; Latin America and sub-Saharan Africa account for 14 and 10 percent of the number of borrowers, respectively. Some of the biggest microfinance institutions include Grameen Bank, ACCION International, and Pro Mujer of Bolivia. The average loan size varies, usually in proportion to the income level THERE’S A PUZZLE at the heart of microof the home country. In Rwanda, a typical loan credit: How can people in new businesses might be $50 to $200; in Romania, it is more likely growing at 20 percent annually afford to pay to be $2,500 to $5,000. Often there is no explicit interest rates as high as 100 percent? collateral. Instead, the banks lend to small groups of about five people, relying on peer pressure for repayment. At mandaincome and made a better life for herself and her daughtory weekly meetings, if one borrower cannot make her ter. But how many borrowers are like Menthe? In our payment, the rest of the group must come up with the judgment, she is the exception, not the norm. Yes, microcash. credit is mostly a good thing. Very often it helps keep borThe achievements of microcredit, however, are not rowers from even greater catastrophes, but only rarely quite what they seem. There is, for example, a puzzling fact does it enable them to climb out of poverty. at the heart of the enterprise. Most microcredit banks The modern story of microcredit began 30 years ago, charge interest rates of 50 to 100 percent on an annualwhen Yunus—then an economics professor at Chittagong ized basis (loans, typically, must be paid off within weeks University in southeastern Bangladesh—set out to apply or months). That’s not as scandalous as it sounds—local his theories to improving the lives of the poor in the moneylenders demand much higher rates. The puzzle is nearby village of Jobra. He began in 1976 by lending $27 a matter of basic economics: How can people in new to a group of 42 villagers, who used the money to develop businesses growing at perhaps 20 percent annually afford informal businesses, such as making soap or weaving to pay interest at rates as high as 100 percent? baskets to sell at the local market. After the success of the The answer is that, for the most part, they can’t. By first experiment, Yunus founded Grameen Bank. Today, and large, the loans serve more modest ends—laudable, the bank claims more than five million “members” and a but not world changing. loan repayment rate of 98 percent. It has lent out some $6.5 billion. At the outset, Yunus set a goal that half of the borrowers would be women. He explained, “The banking icrocredit does not always lead to the creation system not only rejects poor people, it rejects women. . . . of small businesses. Many microlenders Not even one percent of their borrowers are women.” He refuse to lend money for start-ups; they insist soon discovered that women were good credit risks, and that a business already be in place. This suggests that the good at managing family finances. Today, more than 95 business was sustainable to begin with, without a percent of Grameen Bank’s borrowers are women. The microloan. Sometimes lenders help businesses to grow, UN estimates that women make up 76 percent of microbut often what they really finance is spending and credit customers around the world, varying from nearly consumption. with little formal education, she borrowed money to expand the small grocery store she runs on a dusty road on the outskirts of Botswana’s capital city, Gaborone. Menthe’s store has done well, and she has expanded into the lucrative business of selling phone cards. In fact, she’s been successful enough that she has built two rental homes next to her store. She has diversified her M 28 Wi l s o n Q ua r t e r l y ■ Wi n t e r 2 0 0 8 Microcredit That is not to say that the poor are out shopping for jewelry and fancy clothes. In Hyderabad, India, as in many other places, we saw that loans are often used to pay for a child’s doctor visit. In the Tanzanian capital of Dar es Salaam, Joel Mwakitalu, who runs the Small Enterprise Foundation, a local microlender, told us that 60 percent of his loans are used to send kids to school; 40 percent are for investments. A study of microcredit in Indonesia found that 30 percent of the borrowed money was spent on some form of consumption. Sometimes consumption and investment are one and the same, such as when parents send their children to school. Indian borrowers often buy mopeds and motorbikes—they are fun to ride but also a way of getting to work. Cell phones are used to call friends but also to run businesses. Bangladesh’s Grameen Bank lends small amounts of money to groups of poor borrowers,who,like these women, For better or worse, attend weekly meetings where they repay their loans. If one cannot pay, the others make up the difference. microborrowing often Commentators often seem to assume that the experientails a kind of bait and switch. The borrower claims ence of borrowing and lending is completely new for the that the money is for a business, but uses it for other purpoor. But moneylenders have offered money to the world’s poses. In effect, the cash allows a poor entrepreneur to poor for millennia, albeit at extortionate rates of interest. maintain her business without having to sacrifice the life A typical moneylender is a single individual, well-known or education of her child. In that sense, the money is for in his neighborhood or village, who borrows money from the business, but most of all it is for the child. Such lifehis wealthier connections and in turn lends those funds to saving uses for the funds are obviously desirable, but it individuals in need, typically people he knows personally. is also a sad reality that many microcredit loans help borBut that personal connection is rarely good for a break; a rowers to survive or tread water more than they help moneylender may charge 200 to 400 percent interest on them get ahead. This sounds unglamorous and even an annualized basis. He will insist on collateral (a televidisappointing, but the alternative—such as no doctor’s sion, for instance), and resort to intimidation and somevisit for a child or no school for a year—is much worse. Wi n t e r 2 0 0 8 ■ Wi l s o n Q ua r t e r l y 29 Microcredit There is, however, an upside to this “bureaucracy.” In reality, it is the moneylender who is the “micro” operator. Microcredit is a more formal, institutionalized business relationship. It represents a move up toward a larger scale of trade and business organization. Microcredit borrowers gain valuable experience in working within a formal institution. They learn what to expect from lenders and fellow borrowers, and they learn what is expected of themselves. This experience will be a help should they ever graduate to commercial credit or have other dealings with IF YOUR SAVINGS ARE INVESTED in a the formal financial world. cow, relatives can’t ask for a small piece of it. The comparison to moneylending brings up another important feature of microcredit. Though its users avoid the kind of intimlife for the planet’s bottom billion even worse by reducidation employed by moneylenders, microcredit could ing their cash flow. Karnani cites the high interest not work without similar incentives. The lender does not rates that microlenders charge and points out that “if demand collateral, but if you can’t pay your share of the poor clients cannot earn a greater return on their group loan, your fellow borrowers will come and take investment than the interest they must pay, they will your TV. That enforcement process can lead to abuses, become poorer as a result of microcredit, not wealthbut it is a gentler form of intimidation than is exercised ier.” But the real question has never been credit vs. no by the moneylender. If nothing else, the group members credit; rather, it is moneylender vs. modern microknow that at the next meeting any one of them might be credit. Credit can bring some problems, but microthe one unable to repay her share of the loan. credit is easing debt burdens more than it is increasIf borrowers are using microcredit for consumption ing them. and not only to improve a small business, how do they At microlender SERO Lease and Finance in Tanrepay? Most borrowers are self-employed and work in zania, borrower Margaret Makingi Marwa told us the informal sector of the economy. Their incomes are that she prefers working with a microfinance instituoften erratic; small, unexpected expenses can make tion to working with a moneylender. Moneylenders repayment impossible in any given week or month. In demand quick repayment at high interest rates. At the countryside, farmers have seasonal incomes and litSERO, Marwa can take six months or a year to pay off tle cash for long periods of time. her lease contract. Given that her income can vary and Borrowers manage, at least in part, by relying on that she may not have money at hand every month, she family members and friends to help out. In some prefers to have a longer-term loan. cases, the help comes in the form of remittances from Moneylenders do offer some advantages, especially abroad. Remittances that cross national borders now in rural areas. Most important, they come up with total more than $300 billion yearly. A recent study in cash on the spot. If your child needs to go to the docTanzania found that microcredit borrowers get 34 tor right now, the moneylender is usually only a short percent of their income from friends and family, some walk away. Even under the best of circumstances, a of whom live abroad, but others of whom live in the microcredit loan can take several days to process, and city and have jobs in the formal sector. That’s the the recipient will be required to deal with many documost effective kind of foreign aid, targeted directly at ments, not to mention weekly meetings. times violence if he is not repaid on time. The moneylender operates informally, off the books, and usually outside the law. So compared to the alternative, microcredit is often a very good deal indeed. Microcredit critics often miss this point. For instance, Aneel Karnani, who teaches at the University of Michigan’s business school, argues that microfinance “misses its mark.” Karnani says that in some cases microcredit can make 30 Wi l s o n Q ua r t e r l y ■ Wi n t e r 2 0 0 8 Microcredit the poor and provided by those who understand their needs. Here again, microcredit does something that traditional banks do not. A commercial bank typically will not lend to people who work in the informal sector, precisely because their erratic incomes make them risky bets. The loan officer at a commercial bank does not care that your brother in Doha is sending money each month to help you out. But a microcredit institution cares only that you come to your weekly meeting with a small sum in hand for repayment. Because of microcredit, families can leverage one person’s ability to find work elsewhere to benefit the entire group. Sometimes microcredit leads to more savings rather than more debt. That sounds paradoxical, but borrowing in one asset can be a path toward (more efficient) saving in other assets. To better understand this puzzle, we must set aside some of our preconceptions about how saving operates in poor countries, most of all in rural areas. Westerners typically save in the form of money or moneydenominated assets such as stocks and bonds. But in poor communities, money is often an ineffective medium for savings; if you want to know how much net saving is going on, don’t look at money. Banks may be a daylong bus ride away or may be plagued, as in Ghana, by fraud. A cash hoard kept at home can be lost, stolen, taken by the taxman, damaged by floods, or even eaten by rats. It creates other kinds of problems as well. Needy friends and relatives knock on the door and ask for aid. In small communities it is often very hard, even impossible, to say no, especially if you have the cash on hand. People who have even extremely modest wealth are also asked to perform more community service, or to pay more to finance community rituals and festivals. In rural Guerrero State, in Mexico, for example, one of us (Cowen) found that most people who saved cash did not manage to hold on to it for more than a few weeks or even days. A dollar saved translates into perhaps a quarter of that wealth kept. It is as if cash savings faces an implicit “tax rate” of 75 percent. Under these kinds of conditions, a cow (or a goat or pig) is a much better medium for saving. It is sturdier than paper money. Friends and relatives can’t ask for small pieces of it. If you own a cow, it yields milk, it can plow the fields, it produces dung that can be used as fuel or fertilizer, and in a pinch it can be slaughtered and turned into saleable meat or simply eaten. With a small loan, people in rural areas can buy that cow and use cash that might otherwise be diverted to less useful purposes to pay back the microcredit institution. So even when microcredit looks like indebtedness, savings are going up rather than down. M icrocredit is making people’s lives better around the world. But for the most part, it is not pulling them out of poverty. It is hard to find entrepreneurs who start with these tiny loans and graduate to run commercial empires. Bangladesh, where Grameen Bank was born, is still a desperately poor country. The more modest truth is that microcredit may help some people, perhaps earning $2 a day, to earn something like $2.50 a day. That may not sound dramatic, but when you are earning $2 a day it is a big step forward. And progress is not the natural state of humankind; microcredit is important even when it does nothing more than stave off decline. With microcredit, life becomes more bearable and easier to manage. The improvements may not show up as an explicit return on investment, but the benefits are very real. If a poor family is able to keep a child in school, send someone to a clinic, or build up more secure savings, its well-being improves, if only marginally. This is a big part of the reason why poor people are demanding greater access to microcredit loans. And microcredit, unlike many charitable services, is capable of paying for itself—which explains why the private sector is increasingly involved. The future of microcredit lies in the commercial sector, not in unsustainable aid programs. Count this as another benefit. If this portrait sounds a little underwhelming, don’t blame microcredit. The real issue is that we so often underestimate the severity and inertia of global poverty. Natalie Portman may not be right when she says that an end to poverty is “just a mouse click away,” but she’s right to be supportive of a tool that helps soften some of poverty’s worst blows for many millions of desperate people. ■ Wi n t e r 2 0 0 8 ■ Wi l s o n Q ua r t e r l y 31 International Organization Foundation Conditioning the Effects of Aid: Cold War Politics, Donor Credibility, and Democracy in Africa Author(s): Thad Dunning Source: International Organization, Vol. 58, No. 2 (Spring, 2004), pp. 409-423 Published by: Cambridge University Press on behalf of the International Organization Foundation Stable URL: http://www.jstor.org/stable/3877863 Accessed: 15-12-2016 19:44 UTC JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://about.jstor.org/terms Cambridge University Press, University of Wisconsin Press, International Organization Foundation, The MIT Press are collaborating with JSTOR to digitize, preserve and extend access to International Organization This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid: Cold War Politics, Donor Credibility, and Democracy in Africa Thad Dunning Abstract The effect of foreign aid on regime type in recipient countries remains widely debated. In this research note, I argue that a recent focus on "moral hazard" has distracted attention from another mechanism linking foreign aid to domestic po- litical institutions. During the Cold War, donors' geopolitical objectives diminished the credibility of threats to condition aid on the adoption of democratic reforms. The demise of the Soviet Union and the end of the Cold War, on the other hand, enhanced the effectiveness of Western aid conditionality. I reanalyze an important recent study and demonstrate that the small positive effect of foreign aid on democracy in sub-Saharan African countries between 1975 and 1997 is limited to the post-Cold War period. This new empirical evidence underscores the importance of geopolitical context in conditioning the causal impact of development assistance, and the evidence confirms that the end of the Cold War marked a watershed in the politics of foreign aid in Africa. What is the impact of foreign aid on democracy and regime type in recipient countries? This question has become an important research topic with significant policy implications, yet the effect of aid on local political institutions remains widely debated. While some analysts suggest that aid "conditionality" may further the adoption of democratic reforms in recipient countries,1 others claim that aid creates a "moral hazard" 2 for authoritarian local politicians, who pursue goals at odds with the aims of foreign donors. For these latter analysts, aid simply provides a source of income with which autocratic leaders may repress or co-opt local popu- I would like to thank Henry Brady, Jennifer Bussell, Ruth Berins Collier, David Collier, Robert Powell, Jason Seawright, Beth Simmons, Laura Stoker, and two anonymous reviewers for their comments. I am also grateful to Arthur Goldsmith for sharing his data. Any errors are my own. 1. Goldsmith 2001. 2. The concept of moral hazard was first developed in the context of economic analyses of insu ance. In this framework, the problem of moral hazard occurs not only because insured agents exerci power over the probability or risk of the bad outcome against which they are insured, but also becau the insurance company has a limited ability to monitor the agents' actions because of informatio asymmetries. International Organization 58, Spring 2004, pp. 409-423 DOI: 10.1017/S0020818304582073 0 2004 by The IO Foundation. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms 410 International Organization lations' demands for democratization.3 Scholars have also disagreed about the ob- jectives of donor countries and international organizations themselves. Is the promotion of democracy really a main priority for donors, or do geopolitical factors instead cause donors to overlook undemocratic practices and allocate aid to strategic, if autocratic, allies?4 Recent attempts to evaluate the empirical record have produced a growing body of evidence that is, unfortunately, inconclusive.5 In this research note, I argue that a recent focus on "moral hazard" has distracted attention from another mechanism linking foreign aid to local political institutions: the way in which global geopolitics may limit the feasibility of aid "conditionality." During the Cold War, foreign donors prioritized strategic considerations and the spread of their political influence in sub-Saharan Africa. These geopolitical objectives, however, may have diminished the credibility of donors' threats to make the disbursement of further aid conditional on the adoption of domestic democratic reforms. In contrast, the end of the Cold War may have reduced the influence of geopolitical criteria on donors' allocation of aid and made the threats of Western donors to withhold aid more credible. Aid conditionality may, therefore, have become increasingly possible and effective after the end of the Cold War. If this argument is correct, one should expect the causal impact of aid on democracy to diverge in the Cold War and post-Cold War periods. While many qualitative studies have suggested that the end of the Cold War marked a watershed in the politics of aid in Africa, statistical studies have failed to account for this potential source of heterogeneity in cross-section time-series analyses. In what follows below, I reanalyze an important recent study,6 which found a positive, statistically significant relationship between official development assistance (ODA) from Western countries and the level of democracy in forty-eight sub-Saharan African countries between 1975 and 1997. Using data obtained from the author of that study, I divide the cases into two time periods and then add to the regression model a new dichotomous control variable to reflect whether recipient countries had a client relationship with the former Soviet Union. I find that, in the period from 1975 to 1986, no statistically significant relationship emerges between ODA and democracy.7 By contrast, for the period from 1987 to 1997, the relationship be- tween aid and democracy is positive and statistically significant, while a Chow 3. See Braiutigam 2000; Devarajan et al. 2001; Killick 1998; Maren 1997; and Moore 1998. 4. See Ake 1996; and Hook 1998. 5. For recent arguments, see Abrahamsen 2000; Briiutigam 2000; Devarajan et al. 2001; Easterly 2001; Hook 1998; Lancaster 1999; Maren 1997; and Moore 1998. 6. Goldsmith 2001. 7. In Goldsmith's 2001 study, the dependent variable is alternately described as "good governance, "due process," "rule of law," "state capacity," "political freedom," and "democracy." In this article, stick to the terms "democracy" and "regime type" and operationalize this dependent variable usin scores on the scale developed by Freedom House. Although democracy remains a contested concep the Freedom House index is widely accepted as one of the best empirical indicators of political demo racy. See Diamond 1999, 12. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid 411 test rejects the hypothesis of equality of coefficients across the two periods. The variable measuring the influence of the Soviet Union is statistically significant and negatively associated with democracy in the earlier period, while the same variable has a positive and statistically significant coefficient in the later period. These findings raise several empirical and theoretical issues for debates about the impact of foreign aid. In the following section, I derive the logic of the theoretical argument. Because there is no a priori reason to expect the allegedly "perverse" effects of aid to strengthen or weaken over time, the "moral hazard" or "perversity" thesis makes no prediction about divergence in the relationship between aid and regime type across historical periods. In contrast, the causal mechanism I highlight here suggests that the impact of Western aid on democracy in Africa should vary systematically between the Cold War and post-Cold War eras. This logic therefore provides an initial way to distinguish empirically the "moral hazard" and the "credible commitment" mechanisms. In the subsequent section, I present statistical evidence that the positive relationship between aid and democracy in Africa is limited to the post-Cold War period, lending support to the "credible commitment" story and underscoring the importance of global geopolitical context in conditioning the impact of aid. Foreign Aid, Democracy, and the Credibility of Aid Conditionality Why might one expect the causal relationship between foreign aid and regime type to diverge in the Cold War and post-Cold War periods? The essence of the difficulty of using aid to promote democracy may lie not so much in an informational asymmetry between donors and aid recipients, as the "moral hazard" argument made by many prominent critics of aid would suggest,8 but rather in the lack of credibility of donors' commitment to reform. When two opposing and competing donors (or groups of donors) such as the Soviet Union and the West vie for influence and clients, aid-receiving countries enjoy greater leverage vis-a-vis their foreign patrons. To the extent that donors actually prefer to promote democracy among recipient countries, threats to make aid conditional on the fulfillment of democratic reforms may not be credible, because withholding aid from autocratic countries could mean losing clients to the other Cold War power. In other words, the geostrategic cost of losing clients may override any perceived benefit from successfully promoting democratic reforms among recipient countries. Recognizing the resulting incredibility of any threat to condition foreign aid on the adoption of democratizing reforms, the leaders of recipient countries may be unwilling to make the changes that donors demand. Donors, who trade off the costs of a lack of democratic reform against the benefits of retaining strategic African clients, 8. For example, Easterly 2002. See also the references in note 3. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms 412 International Organization may nonetheless provide aid to autocratic leaders. One should thus expect no observed association between aid and democracy in this period. The end of the Cold War could make threats to withhold development assistance to African states more credible, and therefore more effective, in two ways. First, the diminished geostrategic importance of African clients in the post-Cold War period would imply that the loss of such clients would impose a negligible geopolitical cost on powerful donors. Second, the dissolution of the Soviet Union may not only have removed a geopolitical threat to the West but may have vindicated the liberal values of Western donors, lending them a sense of the possibility of democratization all over the world. Thus the perceived benefit of promoting democracy in Sub-Saharan Africa rose even as the cost of losing African clients declined dramatically. African leaders lost significant leverage with which to resist aid conditionality, because only one donor (or group of donors) offered aid to them in the post-Cold War period. No longer able to take refuge in balance-ofpower politics, recalcitrant African states could be more effectively pressed to undertake the democratizing reforms that Western donors had de-emphasized during the Cold War. Proponents and opponents of the "perversity thesis" of foreign aid alike provide no reason to expect the influence of the putative "moral hazard" to increase or decrease over time. In contrast, the clear prediction of the credible commitment story is that aid conditionality should become more effective in the post-Cold War period. One should therefore expect a positive relationship between aid and democracy in the post-Cold War period. This causal mechanism and its empirical prediction are supported by the qualitative evidence offered by previous studies of democratic reform in Sub-Saharan Africa. For example, Claude Ake has described a "legacy of indifference" to democracy among Africa's political leaders, a legacy rooted in both the continent's colonial past and the attitudes of many African politicians after independence.9 Faced with challenges to their newfound political power, postindependence elites opted for a unifying developmental ideology that sought to repress internal dissent. Importantly, however, this ideology found obliging complicity from Western countries that were most concerned with the grand strategies of Cold War politics. Rather than press for democratization, Ake argues that Western powers "ignored human rights violations and sought clients wherever they could." 10 This was as true for the Soviet Union as for the Western powers. At a time when Western donors overlooked their liberal principles and the Soviet Union put priority on the advancement of socialist and revolutionary vanguard parties, there was little external incentive for African states to undertake democratizing reforms. Consistent with my claim that threats to withhold aid became more credible as the importance of retaining African clients diminished, however, Ake points to the 9. Ake 1996. 10. Ibid., 63-64. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid 413 significance of Africa's greatly diminished strategic importance for the adoption of democratic reforms in the post-Cold War period: The marginalization of Africa has given the West more latitude to conduct its relations with Africa in a principled way. In the past, the West adopted a posture of indifference to issues of human rights and democracy in Africa in order to avoid jeopardizing its economic and strategic interests and to facilitate its obsessive search for allies against communism. Now that these concerns have diminished, the West finds itself free to bring its African policies into greater harmony with its democratic principles." The failure to tie aid to democratic reforms during the Cold War period, therefore, stemmed from the geostrategic priorities of donors. On a more fundamental level, however, the greater "latitude" of the West to demand democratic reforms in the post-Cold War period may have its source in the credible commitment issue. Once competition with the Soviet Union for African clients had receded, Western donors could much more credibly threaten to withdraw aid if democratic reforms were not enacted by recipient states. If the argument advanced above is correct, one should expect to see the relationship of aid to regime type in Sub-Saharan Africa to be characterized by temporal discontinuity. Previous quantitative studies of the relationship between foreign aid and democracy have failed to take this source of heterogeneity into account, instead assuming that parameter coefficients are constant over the two periods. In the following section, I provide empirical evidence in support of the alternate hypothesis that a structural shift in the effect of aid on democracy occurred with the end of the Cold War. The Empirical Evidence: Effects of the Cold War on Aid and Democracy In an important recent analysis of the impact of foreign aid on regime type in sub-Saharan Africa, Goldsmith presents statistical evidence that the principled intentions of foreign donors have, on average, been a "minor net plus" for the cause of democracy in sub-Saharan Africa.12 Goldsmith regresses Freedom House "Index of Political Freedom" scores on the ratio of ODA'3 to gross national product 11. Ibid., 64. 12. Goldsmith 2001, 124. 13. ODA comprises bilateral loans and grants from Development Assistance Committee (DAC) members, multilateral organizations to which those members contribute, and certain Arab countries, but it does not include Soviet economic credits to sub-Saharan Africa. The DAC member countries of the OECD are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and United States. ODA includes program, project or food aid, emergency assistance, and peacekeeping assistance or technical cooperation, including loans with a grant element of more than 25 percent. World Bank 1999, 286. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms 414 International Organization (GNP) for forty-eight sub-Saharan African countries between 1975 and 1997 and reports positive and statistically significant estimates for contemporaneous and lagged values of the ODA/GNP variable.14 Accordingly, he concludes that there is "little evidence to support the claim that foreign aid has made governing ... worse, as the perversity thesis would have it." 15 I replicate Goldsmith's results in Table 1. If the theoretical argument suggested in the previous section is correct, however, the positive effect of ODA on the Freedom House scores should be limited to the post-Cold War period. A look at some descriptive statistics in Table 2 sug- gests interesting contrasts between the periods from 1975-86 and 1987-97. Because this periodization of the data plays an important role in the multivariate analysis that follows, a few words of explanation of the break between 1986 and 1987 in Table 2 are in order. My goal was to divide the sample into Cold War and post-Cold War periods, so 1986-87 might seem like a less natural dividing point for the data than, say, 1991, the year of the dissolution of the Soviet Union. However, in the context of Cold War battles for clients in Africa, the latter date is misleading. Heavy Soviet engagement in Africa had already waned by the mid1980s, with the emergence of a "new thinking" in Soviet foreign policy associated with Mikhail Gorbachev, Eduard Shevardnadze, and others, and the Soviet elite had distanced itself from Leonid Brezhnev's foreign policy doctrines. This elite no longer proclaimed, as it once did, the existence of what George Breslauer has termed "an irreconcilable struggle between imperialism and socialism for the allegiance of Third World peoples." 16 More importantly, by 1986, the period of extensive (and expensive) military support for radical regimes in Angola, Ethiopia, and elsewhere in sub-Saharan Africa during the 1970s had come to an end.17 Although it is true, as Ake notes, that the United States seemed to have more latitude to shift its foreign policy goals to a vigorously prodemocracy agenda beginning only in the early 1990s,18 the effective Soviet withdrawal from sub-Saharan Africa certainly affected Western policy priorities in the region. Table 2 reports mean values of Freedom House scores and the ratio of ODA to GNP for each country case during each of the periods. The general trend does not 14. Goldsmith 2001 instruments the ODA variable with a population variable and a dummy variable for having been a French colony, along with the other independent variables in the model, and uses a two-stage least squares (2SLS) model to correct for possible endogeneity. I conducted a DurbinWu-Hausman test and found that the coefficient of the residual from the OLS regression of ODA on all other variables in the implied system of equations was not statistically significant, suggesting that the instrumental variable 2SLS setup may be unnecessary (that is, ordinary least squares estimates may be consistent). Nonetheless, for ease of comparison with Goldsmith's results, in all the tables in this article, I have reported the results of instrumental variable (2SLS) models. As a robustness check I ran the analyses with ordinary least squares (OLS) estimators, and the results were substantially the same as those reported. For more on the Durbin-Wu-Hausman test, see (http://www.stata.com/support/faqs/ stat/endogeneity.html). Accessed 29 December 2003. 15. Goldsmith 2001, 124. 16. Breslauer 1992, 196. 17. Herbst 1990. 18. Ake 1996. See note 11. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid 415 TABLE 1. Replicating Goldsmith's findings: Impact of foreign aid and other variables on Freedom House scores Variable Model 1 Model 2 Model 3 ODA/GNP (no lag) .0142*** ODA/GNP (one-year lag) - .0169*** ODA/GNP (five-year lag) - .0237*** COMLAW .7090*** .6995*** .5720*** ETHNIC .0017 .0021 .0022 GDP PER CAPITA .8470*** .8645*** .8850*** Constant -3.8388*** -4.0041*** -4.132*** Adjusted N R2 916 0.21 0.22 880 0.21 711 Note: This table re the Freedom House scale in half-point include free and co (see Diamond 1999 common law. ETHN greater heterogene (PPP) terms for th cating whether the and 3 include lags o For the sake of com Goldsmith's (2001) r coefficients I obtai with the exception coefficient of GDP as in Goldsmith's o *** p < 0.001. ** p < 0.01. * p < 0.05. contradict the assertion of a linear relationship between Freedom House scores and ODA. In the earlier period, Freedom House scores for all cases ranged around an overall mean of 2.4 on a scale of 1 to 7 (the data was recoded from the normal Freedom House index so that higher scores indicate greater political and civil rights), while in the later period the overall mean has increased significantly, from 2.4 to 3.0. As for the relationship of ODA to GNP (which is expressed in Table 2 as a percentage rather than a ratio), between 1975 and 1986, the cases fluctuated around an overall mean of 13.1, while in the later period between 1987 and 1997, the cases varied around the mean of 19.8. This aggregate impression may, however, mask distinct trends among subgroups of cases. In the first period, the countries that received the lowest scores on the Freedom House variable included the socialist-oriented states allied during the Cold War with the Soviet Union, in particular Ethiopia, Mozambique, and Tanzania. In the later period, however, the increase of the ODA/GNP ratio in countries that had received little or no ODA (that is, aid from the rich, largely Western members of the Development Assistance Committee of the Organization for Economic Cooperation and Development This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms 416 International Organization TABLE 2. Freedom House scores and the ratio of ODA to GNP, averaged for each time period Mean Freedom Mean Freedom Mean of ODA/GNP Mean of ODA/GNP House score House score variable (as %) variable (as %) Country (1975-86) (1987-97) (1975-86) (1987-97) Angola 1.2 1.5 10.2 Benin 1.2 4.2 7.5 14.0 Botswana 5.5 6.0 11.0 4.1 Burkina Faso 3.0 2.8 12.7 16.9 Burundi 1.5 1.5 12.4 21.5 Cameroon 2.1 2.1 3.6 5.3 Cape Verde 2.0 5.0 61.3 34.6 Central African Rep. 1.5 3.2 12.9 14.9 Chad 1.5 2.0 14.1 23.0 Comoros 3.5 3.5 33.0 21.2 Congo, Dem. Rep. 1.5 1.7 3.2 5.4 Congo, Rep. 1.6 3.0 6.5 10.2 Cote d'Ivoire 2.6 2.6 2.05 8.5 Djibouti 3.5 2.3 25.6 Equatorial Guinea 1.4 1.0 - 37.4 Eritrea Ethiopia 1.1 - 2.4 2.8 6.7 - 15.3 Gabon 2.0 3.3 1.8 2.7 Gambia, The 5.3 4.2 27.0 26.7 Ghana 2.8 3.1 3.9 10.1 Guinea 1.25 2.2 12.0 Guinea-Bissau 1.9 3.0 39.4 57.1 Kenya 3.0 2.1 5.9 10.6 Lesotho 3.2 3.3 14.0 11.9 Liberia 2.7 2.0 8.0 Madagascar 2.6 4.2 5.3 13.6 Malawi 1.5 3.0 12.0 27.2 Mali 1.3 4.0 17.8 19.7 Mauritania 1.7 1.7 30.0 24.7 Mauritius 5.7 6.3 3.6 1.8 Mozambique Namibia 1.25 2.5 3.0 4.9 11.1 0.2 77.5 4.3 Niger 1.5 2.7 11.7 17.2 Nigeria 3.8 2.3 0.1 0.9 Rwanda 2.0 1.9 12.2 30.9 4.1 11.4 13.7 SZo Tome and Principe 1.9 4.6 21.3 111.0 Senegal 4.0 Seychelles 2.7 3.4 14.9 5.85 Sierra Leone 2.9 2.2 5.3 18.0 Somalia 1.0 1.0 43.9 51.5 South Africa 2.7 4.2 - 0.3 Sudan 2.6 1.5 8.0 8.1 Swaziland 2.8 2.5 7.9 5.5 Tanzania 2.0 2.5 21.6 Togo 1.6 2.3 11.4 12.8 Uganda 2.4 3.0 7.7 14.4 Zambia 2.8 3.8 9.8 25.1 Zimbabwe 3.3 3.0 2.5 6.8 Overall means 2.4 3.0 13.1 19.8 Note: See the note to Table 1 regarding Freedom H able for a small number of years. The following stat these years: Column 2: Djibouti, 1976-86; Namib 97. Column 4: Cape Verde, 1980-86; Ethiopia, 19 1980-86. Column 5: Djibouti, 1992-93; Somalia, 1 This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid 417 (OECD) during the earlier period is striking. Note for example the case of Tanzania, where ODA went from zero to 22 percent of GNP, or Mozambique, where it went from 11 to 78 percent.19 These descriptive statistics, along with the theoretical argument advanced in the previous section, suggest that the positive, statistically significant effect of foreign aid on democratization that Goldsmith finds may be highly period-dependent. In his analysis, Goldsmith notes that since 1989 "eighteen African countries (have) moved up at least one category in the Freedom House ratings."20 He suggests in passing the possibility that "aid is allocated primarily on geopolitical grounds, and not as a result of rational humanitarian planning." 21 He even mentions that while the U.S. Agency for International Development (USAID) has formally limited its assistance to countries that protect human rights and civil liberties since 1975, "during the Cold War national security considerations often overrode this rule." 22 Yet the statistical analysis does not attempt to take these historical and geopolitical factors into account, nor do the regressions control for period-dependent factors. Aid, therefore, may have a positive impact on democracy only in the later period. To test the argument, in Table 3, I again ran the regression described in Table 1, dividing the sample observations into the two periods presented in Table 2. More- over, I added to the earlier model a dichotomous dummy variable measuring whether a country was a client state of the Soviet Union during the Cold War.23 The proxy for this relationship is whether the Soviet Union considered a subSaharan African state a "revolutionary democracy" or "socialist-oriented" during the 1970s and 1980s, a category that includes thirteen states.24 The goal of adding the SOVIET CLIENT dummy variable to the model specification is twofold. First, because I am interested in the effect of ODA on democracy, the dummy variable makes the specification a kind of pseudo-fixed effects model in which the SOVIET CLIENT variable picks up group-specific factors that may affect the countries that were socialist during the Cold War and that may be correlated with the included 19. Obviously the ratio of ODA/GNP is affected by changes in the denominator as well as in the numerator. Nonetheless, the dramatic growth of this ratio in such cases clearly owes to a rise in the absolute amounts of ODA rather than to a precipitous decline in national income. 20. Goldsmith 2001, 131. 21. Ibid., 140. 22. Ibid., 136. 23. The results reported in Table 3 are robust to the exclusion of the SOVIET CLIENT dummy vari- able, that is, the sign and statistical significance of the estimated coefficients of the independent vari- ables in the restricted model, which I do not report to save space, are largely identical to those in Table 3. 24. The countries are Angola, Benin, Cape Verde, Congo, Ethiopia, Guinea, Guinea-Bissau, Madagascar, Mozambique, Seychelles, and Tanzania ("revolutionary democracies"); and Mali and Zambia ("socialist-oriented states"). Guinea became a "capitalist-oriented" country from the Soviet standpoint in 1984, but I include it as a Cold War client state of the Soviet Union, because the categorization covered most of the first period in my analysis. Somalia, on the other hand, was a "revolutionary democracy" (and thus in favor with the Soviet Union) before 1977, but the Soviets categorized it as "capitalist-oriented" after that year; accordingly, it is coded as a 0 in the dichotomous scheme used here. For data and the sources of these categories, see Albright 1991, 38-39. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms 418 International Organization TABLE 3. Disaggregating the findings: Cold War versus post-Cold War periods Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Variable (1975-86) (1975-86) (1975-86) (1987-97) (1987-97) (1987-97) ODA/GNP (no lag) .0088 - - .0120*** ODA/GNP (one-year lag) - .0073 -- .0154*** ODA/GNP (five-year lag) - - .0031 -- .0220*** SOVIET CLIENT -.5650*** -.5532*** -.5255** .4342** .4449** .5008*** COMLAW .9597*** .9766*** 1.009"** .3976** .4039** .3478* ETHNIC .0009 .0010 .0020 .0011 .0014 .0008 GDP PER CAPITA .7218*** .7092*** .6770*** .9569*** .9908*** .9981*** Constant -2.994*** -2.895 -2.741*** -4.366*** -4.696*** -4.74*** Adjusted N 444 R2 404 .34 .34 250 .35 472 .18 .20 477 .22 463 Chow test 9.127"** 17.73*** 51.827*** Note: This table uses an instrumental variables (two-stag dummy variable, coded 1 for the thirteen countries that w and otherwise coded 0. See note 24. The definition of cl were considered "capitalist-oriented" by the Soviets but no Union during the 1970s and 1980s. For example, Nigeri credits between 1975 and 1979, compared to the $17.5 m explanatory notes are as in Table 1. The Chow test for structural change, which is an F-test, the two periods. The error sum of squares in the unrestric model where the coefficients are restricted to equality acr the specification in Table 1 to make the number of para parameters in the unrestricted model above. Tests in w models yielded similar results. *** p < 0.001. ** p < 0.01. *p < 0.05. independent variables. Secondly, however, it is important to bear in mind that t source of foreign aid considered here is exclusively Western, because the data co from the Development Assistance Committee of the OECD.25 The group-specif intercept on the SOVIET CLIENT dummy variable can then be interpreted as a ki of proxy for the unmeasured influence of Soviet rather than Western aid, at le during the Cold War period.26 Between 1975 and 1986, no statistically significant effect of ODA on the dep dent variable emerges for any of the three models. By contrast, the coefficient ODA in the 1987-97 period is positive and statistically significant at the .001 le in each of the three models. A Chow test for structural change strongly rejects null hypothesis that coefficients are equal in the two periods. Furthermore, th 25. As reported in World Bank 1999. See note 13 on the components of ODA. 26. Because of severe missing data, it was not possible to incorporate the actual amounts of So aid into the analysis. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid 419 results are robust to a variety of departures from ordinary least square (OLS) assumptions about the error term.27 What inferences can one draw from these results? First, they lend support to the hypothesis that the impact of aid on regime type varies between the Cold War and post-Cold War periods. The strong association between the ODA variable and Free- dom House scores around the beginning of the 1990s is apparently driving the statistically significant, positive impact of ODA on democracy that was reported in Table 1 for the entire period from 1975-97. For purposes of this article, the most important point is that ODA stemming from Western countries and certain Arab countries fails to have a statistically significant impact on political freedoms in sub-Saharan Africa from 1975 to 1986. The positive and statistically significant association of the same variables between 1987 and 1997 suggests that the time period clearly matters. Second, the sign of the coefficients on the SOVIET CLIENT dummy variable are notable. In the earlier period, the estimates for this variable are negative and statistically significant in all three of the models, while in the later period they are statistically significant and positively signed. The negative sign in the earlier period may suggest the importance of the unmeasured Soviet aid to such states and certainly is consistent with the theoretical argument I have made above. Just as interesting, however, is the finding that having been a Soviet client state during the Cold War was statistically significantly and positively associated with democratization in the post-Cold War period. This is consistent with the argument that the end of the Cold War precipitated a particularly marked shift among formerly Soviet client states and suggests that previous cross-sectional time-series studies of the impact of aid on democracy in Africa have failed to account for this source of heterogeneity in sample periods. The evidence in Table 3, therefore, supports the claim that the ability of West- ern lenders to condition aid on the adoption of reforms increased with the demise of the Soviet Union. Previous studies have also noted that the end of the Cold War provided an incentive for international donors to move more vigorously to sanction antidemocratic practices than they had during the Cold War. As Bratton and Van de Walle explained in their definitive study of regime transitions in contemporary Africa, "In the post-Cold War world, Western diplomacy is generally intolerant of military intervention in new democracies. Thus, the 1993 coup in Burundi was greeted by the suspension of most foreign aid, as was the deci- 27. For example, readers may be skeptical of the least squares sphericality assumptions (nonautocorrelation and homoscedasticity). Using pairwise inclusion of cases to take account of the slightly unbalanced panel, I estimated the model with panel-corrected standard errors (see Beck and Katz 1995), which correct for panel heteroscedasticity and contemporaneous correlation of the errors. For purposes of comparability with Table 1 and Goldsmith's 2001 results, I report the 2SLS results using uncorrected standard errors in Table 3. However, the sign and statistical significance of the coefficients when panel-corrected standard errors are used are identical to those reported in Table 3. The full set of results are available from the author on request. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms 420 International Organization sion by the Nigerian military to annul the 1993 elections won by Moshood Abiola." 28 It is certainly the case that some threats to apply sanctions have not been followed through in the post-Cold War period and that there have been important inconsistencies of application. A complex mix of "carrots" and "sticks" has been applied, as in the case of Daniel Arap Moi's Kenya,29 and some undemocratic practices have gone unsanctioned, to the chagrin of many critics of international donor organizations. Nonetheless, Goldsmith's assertion that aid may be a "minor net plus" 30 for democracy may be right-in the post-Cold War period alone. The results are also consistent with country-level claims that the demise of the Soviet Union produced a particularly dramatic shift among formerly MarxistLeninist countries. For example, Bratton and Van de Walle observe that "the greatest gains in political liberalization (between 1988 and 1992) were made by governments that started from a very low base of rights observance and that aban- doned an ideological commitment to Marxism-Leninism (e.g., B6nin, Cape Verde, Congo, Ethiopia, Mozambique, and Angola)." 31 A prototypical case is B6nin, which "may lay claim to the most extensive and impressive peaceful political transformation of any formerly one-party African state in the present period." 32 Nwajiaku writes that although the Marxist-Leninist years had isolated B6nin from Western aid, the collapse of the Soviet Union's external financing for African states and the entry of French donors in the 1980s gave French donors, backed by the Bretton Woods institutions (the World Bank and the International Monetary Fund), significant power to promote reforms in B6nin.33 For example, "the limited relaxation of repressive authoritarian practices in the later 1980s and early 1990s precipitated by the loan-attached conditionalities of international donors, which required at least the show of greater 'political transparency,' liberty, and respect of human rights, also encouraged the growth of opposition groups. Greater political openness thus stemmed from a more pronounced need to attract external assistance in order to 'manage' the worsening economic crisis by permitting at least the voicing of discontent ... as developments in Eastern Europe indicated that political authoritarianism was out of fashion." 34 By the end of 1989, "given the country's desperate need for an inflow of funds to alleviate the increasingly tense situation, the French Ministry of Co-operation was able to lean heavily on (Benin's) K6r6kou, virtually forcing him to introduce changes in order to break the economic and political deadlock." 35 28. Bratton and Van de Walle 1997, 241. 29. Goldsmith 2001. 30. Ibid., 124. 31. Bratton and Van de Walle 1997, 160; see also Herbst 1990. 32. Allen 1992, cited in Bratton and Van de Walle 1997. 33. Nwajiaku 1994. 34. Ibid., 434. 35. Ibid., 438. It should nonetheless be noted that although French President Frangois Mitterand was widely given credit for promoting aid conditionality for Africa at the La Baule Franco-American Summit in 1991, French policies have been criticized for their inconsistency. Bratton and Van de Walle This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid 421 Some skeptics could justifiably argue that the empirical models do not completely specify the covariates of democracy in sub-Saharan Africa. The amount of variance explained (as reflected in the R-squared statistic) is fairly low for a timeseries cross-section model and substantially lower during the later period than the earlier, suggesting perhaps an important role for un-modeled factors during the later period. A more complete predictive model might include a measure of dependence on natural resource endowments (which should be negatively associated with democracy according to the "resource curse" literature36), or a measure of the independent role of domestic democracy movements in a number of countries. However, such un-modeled factors are quite plausibly uncorrelated with the included independent variables, reducing the chances of specification bias.37 In any case, the goal of the empirical testing in this research note has not been to provide a complete predictive model of democracy in sub-Saharan Africa but rather to ask whether the structural impact of aid on regime type varies systematically with time period. Here, the answer of the model is clearly affirmative. Conclusion: Foreign Aid and Democracy Reconsidered The findings I present in this research note make two contributions to the deb concerning the effectiveness of foreign aid conditionality. First, the analysis s gests that the causal impact of aid on regime type may be historically conting in ways not appreciated by previous research. The relationship between foreign aid and democracy in sub-Saharan Africa appears to be highly conditioned by t distinction between the Cold War and post-Cold War periods. Earlier empir research, therefore, may have reported misleading averages that in fact maske temporally defined shifts in causal patterns across subgroups of cases. Secondly, the causal mechanism to which I have pointed to explain this diver gence is quite distinct from the increasingly popular "moral hazard" or "perver sity" theory of aid. Whether the latter theory is correct or incorrect, it clearly mak no prediction about temporal variation in the effect of aid on democracy. In oth words, there is no a priori reason to expect the allegedly "perverse" effect of 1997, 241, note that "Democratic B6nin actually saw its French aid decline in the year following transition, whereas recalcitrant authoritarian regimes in Togo, Cameroon, and Zaire all benefited fr French aid increases during the same period." 36. See Ross 2001. 37. See also note 14. Little scholarship has suggested that aid allocation in Africa (at least un recently) has been driven by the natural resource endowments of recipients. As for internal demo movements, much of the existing literature has stressed the extent to which the culmination of d tic democracy movements, though contemporaneous with the end of the Cold War, was independen it. Ake 1996, for example, points out that internal struggles for democratization in a number o Saharan African countries independently came to fruition just as the ideological struggle of Eas West in the Third World came to an end. See also Bratton and Van de Walle 1997. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms 422 International Organization on democracy to strengthen or weaken over time. The predictions of my credible commitment story, on the other hand, contain an important temporal dimension, because the disappearance of the geostrategic threat from the Soviet Union may have made threats from Western donors to withdraw aid much more credible. The empirical results I present in this article are consistent with the predictions of the credible commitment story but not with the "perversity thesis." The results therefore suggest that further theoretical attention should be focused on the issue of credible commitment in the allocation of foreign aid. These empirical and theoretical points justify increased attention as well to the geopolitics of aid provision in future research. In contrast to recent arguments advanced by some of foreign aid's critics, the likelihood that aid may effectively promote democracy will in fact increase when the role of strategic or geopolitical factors in allocating aid diminishes. Former World Bank economist William East- erly recently launched a scathing criticism of donor organizations, entitled "The Cartel of Good Intentions" in which he states: among the most popular concepts the aid community has recently discovered is "selectivity"-the principle that aid will only work in countries with good economic policies and efficient, squeaky-clean institutions. The moment of aid donors' conversion on this point supposedly came with the end of the Cold War, but in truth, selectivity (and other "new" ideas) has been a recurrent aid theme over the last 40 years.... Unfortunately, evidence of a true conversion on selectivity remains mixed.38 In fact, the suggestion that aid conditionality is a recycled notion may be irrelevant. What may matter is not whether donor "selectivity" is a new idea, or whether aid will only "work" in countries with institutions that are already "squeakyclean." Instead, a crucial factor may be whether the threats of international donors to withdraw aid if democratic reforms are not adopted can be made credible and therefore effective. The theory and evidence presented above suggest that condi- tioning aid on levels of democracy in recipient countries may only be credible under certain global geostrategic circumstances-for example, those provided in Africa by the end of the Cold War. The empirical evidence presented above should provide a small measure of encouragement to the proponents of foreign aid. At the same time, for those concerned with promoting democracy in Africa, there is no guarantee that the propitious conditions posed by the end of the Cold War will persist. U.S. policymakers have recently begun point out the strategic nature of West and Central African oil reserves, implying that geopolitical criteria could play an important role in pending aid allocation decisions.39 The research presented here should thus also sound a note of alarm about the future dangers that geopolitical factors could pose to the effectiveness of aid conditionality. 38. Easterly 2002. 39. See, for example, James Dao, "In Quietly Courting Africa, U.S. Likes Dowry," New York Times, 19 September 2002, Al. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms Conditioning the Effects of Aid 423 References Abrahamsen, Rita. 2000. Disciplining Democracy: Development Discourse and Good Governance in Africa. London: Zed Books. Ake, Claude. 1996. Rethinking African Democracy. In The Global Resurgence of Democracy, 2d ed., edited by Larry Diamond and Marc F. Plattner, 63-75. Baltimore, Md.: Johns Hopkins University Press. Albright, David E. 1991. Soviet Economic Development and the Third World. Soviet Studies 43 (1):27-59. Allen, Chris. 1992. "Goodbye to All That": The Short and Sad Story of Socialism in Benin. Journal of Communist Studies 8 (2):63-81. Beck, Nathaniel, and Jonathan N. Katz. 1995. "What to Do (and Not to Do) with Time-Series Cross- Sectional Data." American Political Science Review 89 (3):634-47. Bratton, Michael, and Nicolas van de Walle. 1997. Democratic Experiments in Africa: Regime Transitions in Comparative Perspective. Cambridge: Cambridge University Press. Brdiutigam, Deborah. 2000. Aid Dependence and Governance. Stockholm: Almquist and Wiksell International. Breslauer, George W. 1992. Explaining Soviet Policy Changes: Politics, Ideology, and Learning. In Soviet Policy in Africa: From the Old to the New Thinking, edited by George W. Breslauer, 196216. Berkeley: Center for Slavic and East European Studies, University of California, and the Berkeley-Stanford Program in Soviet Studies. Devarajan, Shantayanan, David R. Dollar, and Torgny Holmgren, eds. 2001. Aid and Reform in Africa: Lessons from Ten Case Studies. Washington, D.C.: World Bank. Diamond, Larry. 1999. Developing Democracy: Toward Consolidation. Baltimore, Md.: Johns Hopkins University Press. Easterly, William. 2001. The Elusive Quest for Growth: Economists'Adventures and Misadventures in the Tropics. Cambridge, Mass.: MIT Press. - 2002. The Cartel of Good Intentions. Foreign Policy 131 (July/August):40-44. Goldsmith, Arthur A. 2001. Foreign Aid and Statehood in Africa. International Organization 55 (1):123-48. Herbst, Jeffrey. 1990. Third World Communism in Crisis: The Fall of Afro-Marxism. Journal of De- mocracy 1 (3):92-101. Hook, Steven W. 1998. "Building Democracy" through Foreign Aid: The Limitations of United States Political Conditionalities, 1992-1996. Democratization 5 (3):156-80. Killick, Tony, Ramani Gunatilaka, and Ana Marr. 1998. Aid and the Political Economy of Policy Change. London: Routledge. Lancaster, Carol. 1999. Aid to Africa: So Much to Do, So Little Done. Chicago: University of Chicago Press. Maren, Michael. 1997. Road to Hell: The Ravaging Effects of Foreign Aid and International Charity. New York: Free Press. Moore, Mick. 1998. Death Without Taxes: Democracy, State Capacity, and Aid Dependence in Fourth World. In The Democratic Developmental State: Politics and Institutional Design, edited Mark Robinson and Gordon White, 84-121. Oxford: Oxford University Press. Nwajiaku, Kathryn. 1994. The National Conferences in Benin and Togo Revisited. Journal of Mod African Studies 32 (3):429-47. Ross, Michael. 2001. Does Oil Hinder Democracy? World Politics 53 (3):325-61. World Bank. 1999. Entering the 21st Century: World Development Report 1999/2000. Washingt D.C.: World Bank. This content downloaded from 141.165.253.11 on Thu, 15 Dec 2016 19:44:07 UTC All use subject to http://about.jstor.org/terms The cartel of good intentions Easterly, William Foreign Policy; Jul/Aug 2002; 131; ProQuest Central pg. 40 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. 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