Morning roundup

A closing of the browser tabs:

• The Economist's write-up of Barcelona's new Museum of Prohibited Art. The museum's website is here. 
• Europe considering pricing agricultural emissions.
• Bill Gates on some of the climate tech in the pipeline.
• Cass Sunstein on goods that people buy but wish did not exist. Fun as a logical exercise - this class of goods could exist in this way. But banning them would just push status-seeking onto other margins. Other margins can be worse. And what if there's an additional class of goods: ones that people loudly claim they wish didn't exist, but secretly enjoy? In that case, could you ever tell which ought to be banned?
• Stephen Jennings's Conversation with Tyler. Great stuff on building new cities in Africa, and a gloomy bit about New Zealand. 
• What happens when central government tries to centrally plan daycare. Maybe Stephen Jennings is right to be pessimistic about the place. 

Mileage may vary

I wouldn't have expected this. And I couldn't make any sense of it until I saw the line "investments in complements to production" and thought about it for a second. And then it made sense.

The World Bank's released a policy working paper on the effects of cash and in-kind food transfers in Mexico on student learning. Here's the abstract:

This paper studies the medium-term impact of early-life welfare transfers on children’s learning. It studies children who were exposed to the randomized controlled trial of the Mexico’s Food Support Program (the Programa de Apoyo Alimentario, PAL), in which households were assigned to receive cash, in-kind food transfers, or nothing (a control). The children are matched with administrative data on primary school standardized tests, which were taken four to 10 years after the experiment began. The findings show that in-kind transfers did not impact test scores, while cash transfers led to a significant and meaningful decrease in test scores. An analysis of the mechanisms driving these results reveals that both transfers led to an increase in child labor, which is likely detrimental to learning. In-kind food transfers, however, induced a greater consumption of several key micronutrients that are vital for brain development, which likely attenuated the negative impacts of child labor on learning. 

How could a cash transfer to families increase child labour? If the cash enables a rural family to buy more livestock that then requires more on-farm labour from the kids, which reduces the kids hours of schooling and increases their likelihood of attending a lower quality school.

Afternoon roundup

The worthies on a very much belated closing of the tabs:

• Nice roundup in Nature on psychology's problems in social priming

  A promising field of research on social behaviour struggled after investigators couldn’t repeat key findings. Now researchers are trying to establish what’s worth saving.

• Somebody is gluing miniature cowboy hats to pigeons in Los Vegas.

  “They look like happy pigeons to me. It is hard to know, of course, because they will not talk to us.”

• This one's more depressing. The Dean of the University of Virginia's School of Education writes a column for the Washington Post on education and education funding. You'd expect the column would be decent, right? The Washington Post is one of the newspapers that seems to be doing well on subscriptions; heck, I pay for a subscription there. And he's the Dean of the School of Education at one of the top universities in the US. But he claims that real per-student education expenditures have been dropping. Corey DeAngelis points to the actual data showing a 36% real increase over the period. This was a couple days ago, and there's as yet no correction at the Post.


• Average is over: geographic segregation edition. An ultra-Catholic community in Kansas. Excellent long-read; the kind of thing I'd have pointed to Denis for Arts & Letters Daily, back in the day.


• Randy Holcombe on Gordon Tullock on inequality and redistribution. Self-recommending. We might note, though, that New Zealand's overall system has been one of the more targeted ones - I wonder how that ranking's been affected by sillier policies like extra free years of tertiary study.

  People can afford to be charitable with their votes when they know their one vote will have no effect on the outcome of an election. This may be Tullock’s most important contribution to the literature on redistribution and inequality—the observation that because of incentives inherent in the political process, people are likely to vote for redistribution programs they would not choose if the choice were theirs alone.
  
  Tullock (1971) anticipates the arguments made by Brennan and Lomasky (1993) and Caplan (2007), explaining how people can vote expressively and even irrationally for outcomes that redistribute more than they privately prefer. This adds a wrinkle to Tullock’s analysis of motives and justifications for redistribution. Tullock (1997) dismisses justifications for redistribution and looks at motives—the desire to receive transfers, the wish to help the poor, and envy—to conclude that government redistribution will not be very effective at helping the poor. But he suggests government redistribution is larger than the median voter would prefer because of the incentives in the democratic political process that cause people to be more charitable in their voting behavior than when considering private charitable giving done individually (Tullock 1971). Perhaps this unintended consequence of democratic decision making renders democratic government a better mechanism for helping the poor than Tullock (1997) recognized.

• When New Zealand's declining PISA scores were released, we heard a lot about how PISA scores don't matter. I rather prefer Australia Labor MP Andrew Leigh's take on Oz's declining scores.

  Forget how we’ve slid relative to other countries -- it’s enough to compare our own students with their predecessors. Year 9 students today score worse than year 8 students would have done at the turn of the century. If this was a sporting contest, we’d be running slower, dropping the ball more often, and missing more goals.
  
  The PISA tests matter because they are designed to capture the skills that young people will need in the workplace. These tests don’t measure memorisation and rote learning -- they aim to capture the essential talents that will be needed in the labour market.

• Kudos Doc Nolan!


• Phil Twyford continues to provide speeches showing he gets housing better than anyone in Parliament. I don't agree with everything in here, but it's good. And we finally now have the infrastructure financing legislation coming through - the Bill has been introduced, and they're expecting to have it done mid 2020. About three years after they came into office. New Zealand's electoral cycles are too darned short given the length of time it takes to get substantial legislation ready.

  I now want to look in a little more depth at housing and land markets, and transport.
  
  I started by saying urban planning has lacked an economic underpinning. An example of this is the use of the urban growth boundary which is a common planning tool ostensibly to stop cities growing outwards, often described pejoratively as sprawl.
  
  Sprawl is often meant as development on the fringes of a city, far from the centre. But I want to make the point that the better way to think of it is in relation to the time value of travel.
  
  If you are building homes let us say in Pukekohe in the south of Auckland, where people who work in the city centre might face a drive of 90 minutes on a bad day, that might be characterised as sprawl. But when we electrify the rail line to Pukekohe, and build an additional line on the main north-south corridor, as we are about to do, those people will have a 30 min express commuter ride into the city, is it sprawl then? I don’t think so.
  
  The most harmful effect of the urban growth boundary where there is rising demand is to create an artificial scarcity of land driving section prices up.
  
  The boundary is much loved by land bankers whose business model is to buy up rural land and sit on it until the local council shifts the boundary in response to growth pressures, changing the zoning from rural to urban, and then sell it sometimes at ten times its former value.
  
  My intention is not to vilify land bankers. Their behaviour is a rational response to bad policy.
  
  If the urban growth boundary wasn’t bad enough, restrictions on height and density, often justified as protecting the amenity of the low-rise garden suburb, ration floor space, stopping the city growing up and restricting the supply of apartments, and of course driving up prices across the market.
  
  Urban planning has too often failed to grasp that whenever rules stop people building or living in places they want to (typically close to amenity, jobs or transport interchanges) they deny people housing choices, restrict supply and drive prices up.
  
  As Ed Glaeser says, every time you place a restriction on intensification you deny a family access to the city.

• More evidence against Sachs's Millennium Villages. Small or null results on core indicators, no spillover benefits.

LEAPs forward

Foreign Policy gives us a somewhat implausible critique of Honduras's LEAP zones, the ZEDEs.

First, a bit of history. Paul Romer shifted from academic work on high-tech growth-theory macroeconomics to pursue institutional innovation. He realised, correctly, that you can't do much to change a country. But you can, perhaps, make some progress in a small region. Set up a small autonomous zone in a developing country with access to sound law, sound money, property rights and decent infrastructure, and you'll kickstart development not just for that special economic zone but also for the rest of the country through remittances at first, then through institutional leakage as the host country starts adopting the best parts of what makes the zone work.

I've been a fan of these for a while. A few years ago, a final exam question in my undergraduate Public Choice class asked students to imagine themselves a billionaire who wanted to make the world a better place: should the billionaire's bequest go to Seasteads, or to Charter Cities?

Honduras changed its constitution to allow a few of these to emerge. The Zones for Economic Development and Employment, the ZEDEs, can now be created. They differ from charter cities in that they're broader regions in which cities could be established, but they don't have to be cities.

Mark Klugmann spoke about these at Mont Pelerin this year; here's a Reason write-up from early August.

Now, over to Foreign Policy. The author there provides two critiques:

1. The ZEDE board is stacked with Cato-type free-marketers;
2. The zones, when established, will expropriate the current inhabitants who don't always have well-documented rights to their property.

I believe the first one to be true. It's because I believe the first one to be true that I put rather less weight on the second one. If there's anybody who fights against government expropriation and eminent domain abuses, it's Cato-type free-marketers. A bunch of Cato-type free-marketers are not likely suspects in a "expropriate peasant farmers to benefit big corporates" scheme.

The article's worth reading for a bit of background. And Paul Romer tweets that he's also a bit worried. I'm not worried about any zones that might be established by Klugmann's group. If others use the provisions for setting up other zones, that could be different. 

My print piece in today's National Business Review hits on the ZEDEs. I wonder whether we could establish special economic zones here as experiments. Imagine getting rid of the RMA in a few areas and there reverting to tort and nuisance. 

Perhaps shifting to reforms in special economic zones is an abandoning of the prospect of large-scale reform in New Zealand. But perhaps it is also the best we can achieve under the current electoral system. It could also be a reasonable approximation of best-practice: try something new in a few places, see if it works, then either scale it up or end it depending on outcomes. The idea seems fertile. 

If it didn't work, the harms are limited. But if it did....

How do you mitigate a problem like a NIMBY?

I think I might have a partial solution to NIMBY blocking of urban intensification: a way of paying them at the margin for disamenity effects.

The one-line version: if your neighbour develops, your taxes drop.

Here's how we do it. Or at least the initial sketch-outline blog version of it. I'll expand on it later and, hopefully, fix the problems with it that you'll helpfully point out.

Consider a city of 10,000 dwellings and 12,000 households. Most of these dwellings contain one household, but some contain two households because there are more households than there are dwellings. The City collects $10,000,000 in taxes, with a $1,000 per-dwelling tax, on a standard Council rates system: the Council specifies how much money it needs to collect and that amount is apportioned across dwellings based on the relative value of the dwellings. Dwellings with higher total capital valuation pay more in tax. In this case, they're all identical for simplicity of exposition but nothing requires that they be identical or pay identical taxes.

Suppose that, in this set-up, somebody wants to put up an apartment building that would contain 100 dwellings to house 100 households. The developer pays Council a development levy that covers the building's interconnection costs: the costs the building imposes on Council. Since people would move into this building from existing overcrowded dwellings, there's no additional cost on Council of additional capitation-based services. Specify for now that each of these apartments has the same capital valuation as existing dwellings for simplicity, though again, that will vary in the real world. Council still needs to collect $10,000,000 in taxes in total to cover those services, so long as it's set the development levy correctly.*

Under the existing system, the $10,000,000 in taxes will now be spread over 10,100 dwellings rather than over 10,000 dwellings. Each dwelling consequently remits $990 in taxes. If the neighbours of the apartment building get more than $10 in disamenities from the apartment building's existence, they will lobby against its construction.

Now the RMA has some mechanism for identifying neighbours who are affected by the new development. Maybe some experience more traffic, maybe some lose a bit of view, and maybe others lose a bit of neighbourhood character. Specify that these effects, for this apartment building, extend over 100 dwellings in a circle around the new apartment building. Again, in the real world, it won't be a circle, but it doesn't matter. The RMA and Councils already have some mechanism for identifying affected neighbours; whatever that mechanism is has, in this case, identified these 100 dwellings.

Council needs to raise $10,000,000 in total, but nothing says that we need to spread the abatement provided by the new apartments to the city as a whole. In fact, on thinking about it, it seems pretty silly to spread the abatement so broadly. We've identified a set of affected neighbours who bear the costs of the new development but get the same tax abatement benefits as everybody else. Why not define a Special Ratings Area by the dwellings that experience disamenities from the new development, using whatever process is already in place for defining affected neighbours?

Let's instead specify that the total rates collected from both the new development and all the affected neighbours remains constant after the new development's construction. Those 100 dwellings used to remit, in total, $100,000 in taxes: $1000 each. Dwellings in the circle paid $100,000; dwellings outside of the circle paid $9,900,000. Outside of the circle isn't affected by the apartment building. We'll say now that all of the dwellings inside the circle, including the dwellings in the apartment building, have to remit $100,000 in taxes in total. Since there are now 200 dwellings in the circle instead of 100, the per-dwelling levy is now $500 instead of $1000. The dwellings outside the circle continue to pay $9,900,000 and the necessary $10,000,000 is collected in total. Now, neighbours would need to enjoy more than $500 per year in disamenity effects in order to wish to block the development.

This doesn't solve every problem in the world. There are neighbours who would experience more than $500 per year in disamenities and would still NIMBY up. But there will be a range of neighbours in the $10 to $500 range who cease their opposition.

If we wished a stronger counter-NIMBY effect, we could say that all dwellings inside the circle remit in total the necessary $100,000, but that the new apartments are levied at the rates that obtain outside of the circle. Only the affected neighbours then enjoy the benefits of the Special Ratings Area. The total amount collected will be the same. But, in that case, and in this example, the new apartments each remit $1000 in taxes while the 100 affected neighbours each see a complete rates abatement. So we would only hear complaints from NIMBYs experiencing more than $1000 in disamenity effects.

If the apartment development were large enough, and if the number of affected neighbours were small enough, one could imagine scenarios where the neighbours received a negative rates bill: had there been 150 apartments each remitting $1000 in taxes, and the same number of affected neighbours, there would have been $50000 in surplus to distribute among the 100 affected neighbouring dwellings: a $500 cash bonus each instead of a $1000 rates bill. In that case, it would take $1500 in disamenities to trigger NIMBY activity.

I doubt you would want that this be locked in in perpetuity.** I would expect we could see this system apply in the first year. Perhaps after 10 years, the circle as a whole, including the apartment, could remit a total rates bill equal to a half-way point between the total amount remitted inside the circle prior to the development and the total amount that would be remitted had every dwelling inside the circle, apartments included, paid the same amount as those outside the circle.

The steady-state for the circle going from 100 dwellings to 100 dwellings plus 100 apartment-dwellings could then be $150,000 in total taxes rather than $200,000. Prior to the development, the 9900 dwellings outside the circle remitted $9,900,000 in total taxes; now they'd only need to cover $9,850,000, so their rates bill would drop from $1000 each to $995 each. Each of the 100 apartments would remit the same $995 in taxes, covering $99,495 of the circle's $150,000. The remaining dwellings in the special ratings area would remit $505 each in taxes. Everybody's better off. Affected neighbours get strong abatement. Other pre-existing dwellings see a small amount of abatement too. And we reduce overcrowding because we have found a way of compensating the NIMBYs.

Now real world ratings systems are more complicated than this. More valuable dwellings remit more in tax. What I'm here establishing is a new Special Rating Area within which the city could apply its standard differential progressive capital value taxation scheme, charging more valuable dwellings a greater share of the amount that needs to be collected and less valuable dwellings a smaller proportion. It's just that instead of applying it over the city as a whole, they carve out areas around new developments as defined by the affected neighbours, and re-apply the standard apportionment formula to levy a total amount of rates across dwellings within that defined area. The rates bill for those in the area has to drop relative to what they pay in the current system, and NIMBY pressure consequently drops too.

Note further that these kinds of benefits should be stackable. If your dwelling is affected by two different new developments, you should see cumulative rates decreases.

Questions for readers:

1. Does a system like this apply anywhere in the existing world?
2. Are there obvious gaping holes that I'm missing?
3. What seems like a fair and politically sustainable time path for the special ratings area?

I'm sure there are many practical implementation issues like the calculations for dwellings in overlapping special ratings areas. And maybe we'd want gradations within the Special Ratings Areas where the most affected dwellings see the most abatement. But this all looks pretty feasible.

It seems like a good idea. Surely somebody has thought of this before. And surely somebody else has explained why it can't work. I'll look forward to your pointers.


* In the real world, they could under- or over-shoot. I've heard many arguments that Councils currently have incentive to over-shoot because doing so shifts the tax burden to new residents over existing ones and to discourage development to avoid NIMBY complaints. I can deal with the latter problem here, but we'll otherwise assume that the developer levies are set correctly.

** And especially where new dwellings might cater to new residents rather than for a shuffling of existing ones: the Council's total budget then has to increase for services that have a per-capita cost, and we don't want to give those outside the circle strong reason to lobby against the new development.

An interesting counterfactual

Start by thinking about the US movie industry. Now take away copyright protection - the government gives up on trying to police it. Next, get rid of most of the country's movie theatres so that the one place where the industry can most securely monetize content is gone. Next, cut per capita income to about $1000. And, get rid of most of the infrastructure that's complementary to the film industry. Finally, make sure that there's no government support of the industry to make up for all the other problems.

There'd be no movie industry at all, right?

Except Nigeria's already there and producing more films per capita than the average for developed countries. Olufunmilayo Arewa documents Nollywood's success.

The rise of the film sector in Nigeria runs counter to existing trends in the film sector in which developing countries, which produce 1.2 films per million inhabitant annually, lag developed countries, which produce 6.3 films per million inhabitants annually.¹⁷³ At current Nollywood production levels, Nigeria produces approximately 6.7 films per million inhabitants annually.¹⁷⁴ Bridging the developing country film production gap remains challenging, particularly because the optimal ways to create domestic film industries remain elusive in many instances. Prior to the proliferation of Nollywood films, at least one commentator suggested that government takeover of the film industry would be the only means by which Nigeria could develop a film industry.¹⁷⁵ 

Notably, although many countries have sought to incentivize particular types of film production through direct government funding, subsidies, or film protection schemas involving film quotas,¹⁷⁶ many of these industries have not been commercially viable in the absence of subsidies or other support schemes. In contrast, Nollywood has created significant volume of local video film content with virtually no government involvement or subsidies. The success of Nollywood may in many respects be attributable to a lack of government involvement and its decentralized nature, which has permitted Nollywood participants to be highly entrepreneurial, adaptive and innovative. Nollywood now may employ as many as 200,000 people directly with estimates of indirect employment as high as 1 million.¹⁷⁷ The market-driven Nollywood approach is less costly than existing models of film production and distribution and may offer a new model for developing countries that wish to develop domestic film industries. [emphasis added; number does seem high, Nigeria population about 158 million...]

Arewa says Nollywood succeeded, in part, because very lax copyright enforcement meant Nollywood films enjoyed early broad distribution, building demand for later works. Now that the brand has been established, more secure property rights could be useful. And, copyright enforcement has stepped up a bit; Arewa quotes the following:

Industry officials and government agencies have started paying closer attention to piracy, but so far there hasn’t been much of an effect. A recent police raid on a well-known DVD-copying operation resulted in a brief confrontation between police and piracy-ring leaders. The pirates stood their ground and burned a police truck, then went back to work making knock-off Nollywood copies. The only repercussion for the offenders? A bill for the damage to the police vehicle.²¹²

Films are low-budget, usually financed by friends and family, and distributed on DVD through informal networks. They don't earn much, and even with copyright, vendors couldn't charge more than the $2-4 they charge per disc: consumers couldn't afford it. But better protection would now yield higher returns through increased legitimate distribution.

Arewa sensibly suggests a few potential channels, like capitalizing on pirate distribution networks through in-film product placement and advertisement, where other alternatives like moving from informal to formal business environments and strengthening intellectual property protection might not be feasible. The lessons probably apply more broadly.

Update: Cowen previously pointed to more on Nollywood and online distribution of Nollywood films: Nollywood plus Netflix = profit.

Feeling good, doing harm - aid edition

Brian Stewart reviews a new book by Samantha Nutt.

Every so often a new book arrives with the force of a much-needed whack over the head.

That's the jolting effect of Samantha Nutt's Damned Nations: Greed, Guns, Armies and Aid, which is causing a sensation within the increasingly troubled world of humanitarian aid.

Written by one of Canada's most influential humanitarian activists, it's the clearest examination I've read in quite a while of the economic incentives — and our own Western inadequacies — that fuel the seemingly intractable violence in so many war-torn countries, particularly in mineral-rich Africa.

A medical doctor and the co-founder of War Child Canada, Nutt is someone who speaks with remarkable moral authority, after spending more than 16 years struggling to help the most vulnerable targets, children and women, in the world's most dangerous conflict areas.

...

On a still larger scale, Nutt warns of a growing trend towards aid competition that harms far more than it helps as the sector becomes dominated by two extremes.

At one end of the spectrum is "a virtual fiefdom of large aid organizations," while at the other is "an abundance of novelty start-ups … led by students, celebrities, and other assorted individuals" with little relevant training or experience.

Meanwhile, "the space between them is rapidly evaporating."

Some of her criticism will sting many of those who acted with the best intentions.

For example, she cites the current trend towards "volunteer tourism," in which high school, church and college groups spend a few weeks building schools or orphanages in an impoverished locale, as a classic case of good intentions breeding bad results.

These groups, she says, "make a spectacle out of poverty and expose overseas communities — especially children — to exploitation and abuse."

What's more, "a revolving door of unskilled workers on the ground in two-week increments is more a burden than a benefit to any community."

Other targets are the giant fund-raising charities that spend huge sums to promote "child sponsorship" through images that portray people as pure victims, passive recipients of charity.

"These are the vestiges of neo-colonialism, cloaked in altruism…. precisely why these appeals are highly effective."

Unless you have specialist skills in demand in poor countries, you're likely deluding yourself if you think your tourist visit is doing any particular good. Which is fine if the work is better than nothing and if it no donation would otherwise obtain. But if Nutt's right that it's more burden than benefit, the delusion is harmful.

I'll have to add the book to the queue.

Drug trade and economic development

Turns out that cocaine production is a net earner for Peru. In theory, it could go either way: the dangers associated with the illegal sector could scare off more activity in the legal sector than the cocaine trade is worth, or the displacement effect could be smaller than net revenue generation.

A new IMF paper says the cocaine trade generates more economic activity than it displaces. Shame it's not in the GDP statistics.

Using UNODC data, we have estimated that the production of illegal coca and cocaine represents the equivalent of 0.9 percent of total GDP in 2009. (See table 3 and figure 7 of the appendix for further details.) By comparison, similar calculations for Bolivia based on UDAPE (2010) data imply that coca leaf represents between 1/8 percent and 1 and 1/4 percent of total GDP, and UNODC sources suggest that illicit coca production represented the equivalent of 21 percent and 14 percent of agricultural output in 2008 and 2009, respectively for Bolivia, as compared to values ranging between 3.6% and 8.25% from 1990 to 2008. Similarly, Colombian DANE (2010) data imply that the share of production of coca and cocaine has ranged between ¾ and 3¾ percent of total GDP from 2000 to 2008, declining toward the end of the period as a result of the coca eradication efforts.

Read the whole paper if you want to learn more about the organization of cocaine production in Peru - a fun read despite extensive use of VARs and impulse-response functions towards the end.

More discussion here; HT: @NZDrug

Makers for Development

Global Village Construction Set in 2 Minutes from Open Source Ecology on Vimeo.

They provide, or will once the plans are all completed, open sourced, licence free plans for building all the essentials from welders to tractors; they hope to help folks in the developing world be able to kit up at low cost. It won't help you if you're on a deserted island without access to, say, angle iron and square tubing, but it's a pretty good start if you've some basics.

I suspect more than a few first world makers will also give things a go too.

Stupid dictators

When a dictator is evil, it's best that's he's less than fully competent. A fully competent evil dictator will extract maximally, leaving subjects with only enough utility to keep them above revolt or suicide. When Farrant and I made that argument about Stalin, and how the impossibility of socialist calculation made the Soviet Union a better place to live, some folks worried that if a dictator were stupid enough, starvation could result through planner error. Stalin's famines were deliberate. But you can imagine a dictator incompetent enough that the famines would be accidental. We'd also expect a dictator that stupid to be replaced by a competent one: a competent one could effectively launch a hostile takeover, promising greater rents to the current dictator's supporters in exchange for taking the helm.

Maybe Venezuela is ripe for that kind of hostile takeover. Chávez apparently has sold oil to China at $5 per barrel out of stupidity rather than as an attempt to buy favour. Writes Caracas Chronicle (HT: Xavier Marquez):

One story that should be getting more play abroad is the simply amazing tale of the oil Venezuela is selling to China for $5/barrel…only for the Chinese to turn around and sell it on to third-parties (read: gringos) at a markup of over 1000%. (And no, that is not a typo.)

The whole crazy story, revealed in the Wikileaks data dump, beggars belief in so many directions at once your head almost spins. Venezuela is sending foreign aid – to China! – to the tune, potentially, of tens of millions of dollars per day! in the form of oil that ends up in your gas tank!

The obvious question is “why?!” And the answer, as far as I can tell, is “just because…”

And that, I think , is why stories like this don’t get more play. Narratively, they’re just deeply unsatisfying. You can’t fit them into any of the tropes that dominate public understandings of Chávez abroad: Chávez-the-Budding-Dictator, Chávez-the-Buffoon and Chávez-the-Dashing-Champion-of-the-Poor. Basically, they don’t make any sense.

It isn’t because Chávez is a despot that Venezuela is handing over gobs of free cash to the Chinese. And it isn’t because he’s enamored of Chinese communism, either.

The reason China gets those $5 oil barrels is more banal and, in its own way, far more tragic: the people now charged with reaching international supply agreements on PDVSA’s behalf couldn’t negotiate their way out of a wet paper bag. This is happening because PDVSA is now so criminally mismanaged that the government ends up signing multimillion dollar deals before anybody’s really grasped what they’ll mean.

The Kiwi example

Bill Easterly uses the diversification of New Zealand foreign aid spending from 1999 to 2008 as exemplar of what not to do.

An interesting case in point is New Zealand aid. Before a major reform, its largest program was giving college scholarships to poor Pacific Islanders. I don’t have any decisive evidence on how good they were at doing this, so this example is only suggestive, but a priori a scholarship sounds like a relatively effective way to help somebody help themselves — the ideal formula in aid. Then the “SHOULD” nannies took over, and now the tiny New Zealand budget is divided among ALL the fashionable causes in development. (The picture below shows the breakdown between 37 possible sectors in foreign aid.)

As the New Zealand example shows (and it is characteristic of most aid agencies), the SHOULD criteria defeats the whole idea of specialization, and even tiny agencies wind up giving 5 percent of the budget each to 20 different causes. Since there are fixed overhead costs of operating in a sector (like employing sector specialists), this means that a lot of the aid budget is going to be wasted on overhead costs.

I know basically nothing about New Zealand's foreign aid budget. The 2008 picture looks pretty fragmented.  In 1999, about 8 areas got three quarters of total funding; it looks like that percentage is now split among about a dozen.

The usual argument for individuals is that you should only give to one charity: there has to be some charity that does the most good as you see things, and your dollars are unlikely to have anything but marginal effects. Since you're not pushing your target charity downwards along its marginal benefit curve, just stick with one. In country aid, that'll be different, and especially for a country like New Zealand that takes on a regional mission in a bunch of tiny countries. New Zealand's spending could easily become inframarginal on all kinds of projects. If the foreign aid budget increased from 1999 to 2008, it's very plausible that the marginal student for a scholarship just wasn't worth the investment relative to other projects our foreign aid folks could be pursuing. Again, though, I know nothing about the actual make-up of the budget.

Battling corruption

The World Bank's CommGAP blog notes a neat anti-corruption campaign in India: withdrawing the consent of the victim.

According to Anand, the idea was first conceived by an Indian physics professor at the University of Maryland, who, in his travels around India, realized how widespread bribery was and wanted to do something about it. He came up with the idea of printing zero-denomination notes and handing them out to officials whenever he was asked for kickbacks as a way to show his resistance. Anand took this idea further: to print them en masse, widely publicize them, and give them out to the Indian people. He thought these notes would be a way to get people to show their disapproval of public service delivery dependent on bribes. The notes did just that. The first batch of 25,000 notes were met with such demand that 5th Pillar has ended up distributing one million zero-rupee notes to date since it began this initiative. Along the way, the organization has collected many stories from people using them to successfully resist engaging in bribery.

One such story was our earlier case about the old lady and her troubles with the Revenue Department official over a land title. Fed up with requests for bribes and equipped with a zero rupee note, the old lady handed the note to the official. He was stunned. Remarkably, the official stood up from his seat, offered her a chair, offered her tea and gave her the title she had been seeking for the last year and a half to obtain without success. Had the zero rupee note reached the old lady sooner, her granddaughter could have started college on schedule and avoided the consequence of delaying her education for two years. In another experience, a corrupt official in a district in Tamil Nadu was so frightened on seeing the zero rupee note that he returned all the bribe money he had collected for establishing a new electricity connection back to the no longer compliant citizen.

The victim of corruption signals that he or she is the type that will report the corrupt official, and the official backs down. Why didn't this work without the note? The note signals that the bearer knows how to report the corrupt official:

Anand believes that the success of the notes lies in the willingness of the people to use them. People are willing to stand up against the practice that has become so commonplace because they are no longer afraid: first, they have nothing to lose, and secondly, they know that this initiative is being backed up by an organization—that is, they are not alone in this fight.

This last point—people knowing that they are not alone in the fight—seems to be the biggest hurdle when it comes to transforming norms vis-à-vis corruption. For people to speak up against corruption that has become institutionalized within society, they must know that there are others who are just as fed up and frustrated with the system. Once they realize that they are not alone, they also realize that this battle is not unbeatable. Then, a path opens up—a path that can pave the way for relatively simple ideas like the zero rupee notes to turn into a powerful social statement against petty corruption.

The notes are distributed by 5th Pillar, who print their contact details on the notes.

HT: Oxfam

Better off stateless?

Ben Powell, Pete Leeson and others have done interesting work on the relative performance of Somalia and ex ante comparable African states. While Somalia would be a terrible place to live, folks there often are better off than folks in neighbouring countries.

Interesting case reported by the BBC in the Ivory Coast where the northern town of Bouake, formerly capital of the rebels' region, has been operating under near-anarchy for a few years.

It was perhaps that legacy and a relatively high education that gave people the courage to try to make the best of difficult situation.

When civil servants fled south, volunteer teachers, like Ali Ouattara, stepped forward to try to keep things going.

"We didn't want the kids to become child soldiers, so we tried to give them something. This is how we became teachers," says Mr Ouattara, who lost his job at the university at the start of the crisis.

Most of the volunteer teachers had limited qualifications and no experience of teaching.
At first they had almost no resources as the schools had been ransacked and the lawlessness meant they were scared to discipline their pupils, who were sometimes armed.

Gradually with contributions from parents, the ad-hoc schools helped save a generation of children, and in some years the rebel zone got better results in national exams than the government zone.

Other volunteers helped cover for the absence of the state in other ways: setting up an ad-hoc postal service; their own television stations and some basic policing.

As for prospects, the Ivory Coast is set for reunification:

For example, Bouake now has a booming business in motorbike taxis - illegal under Ivorian law.

But here it is a sector that has kept hundreds of young men off the streets.

The problem is they will not have a place in a reunified Ivory Coast, what with their untaxed scooters, unlicensed businesses and lack of driving licences.
...
UN observation points along the former ceasefire line have already been dismantled but the most delicate part of reunification - handing over guns and control of taxes - still seems a long way off.

And, seven years without traffic lights, taxes or utility bills develops habits that are hard to budge.

The BBC's podcast on life in Bouake is here. UPDATE: Having heard most of it, I strongly recommend...

HT: Radley Balko

Sachs smackdown

Jeff Sachs last week delivered an ugly attack on Bill Easterly on The Huffington Post in which he accused Easterly of seeking to pull the ladder up behind him and deny aid to folks in Africa. A nasty cheap shot, and without foundation.

Easterly replies today, rebutting Sachs' accusations using bits of Easterly's own work previously cited by Sachs.

Sachs accuses me of such a hard heart as to deny "$10 in aid to an African child for an anti-malaria bed net." Sachs offers: "Here are some of the most effective kinds of aid efforts: support for peasant farmers to help them grow more food, childhood vaccines... roads, .. safe drinking water...."

Sachs likes a lot more another writer whom he quoted in his book Common Wealth:
"Put the focus back where it belongs: get the poorest people in the world such obvious goods as the vaccines,... the improved seeds, the fertilizer, the roads, the boreholes, the water pipes...." Wait, that was me!

Sachs was earlier quoting from my book, The White Man's Burden, which far from wanting to deny an African child bed nets, denounces the tragedy of aid impunity, in which "The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families."

Sachs complained that "most Americans know little about the many crucially successful aid efforts, because Moyo, Easterly, and others lump all kinds of programs -- the good and the bad -- into one big undifferentiated mass." Sachs again prefers another writer whom he quoted in Common Wealth: "Foreign aid likely contributed to some notable successes on a global scale, such as dramatic improvement in health and education indicators in poor countries."

You guessed it -- that was me again, illustrating how aid COULD work if only aid agencies were accountable for their actions.

Easterly then goes on to highlight some of the cases of "aid impunity" against which he's been fighting.

Easterly's Aid Watch is on my RSS reader; add it to yours if you haven't.