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African Poors: Poverty, Failed Aid & Extractive Institutions January 28, 2014

Posted by OromianEconomist in Africa, African Poor, Aid to Africa, Climate Change, Dictatorship, Economics: Development Theory and Policy applications, Environment, Food Production, Human Rights, Janjaweed Style Liyu Police of Ethiopia, Knowledge and the Colonizing Structure., Land Grabs in Africa, Nelson Mandela, Nubia, Oromia, Oromiyaa, Oromo, Oromo Culture, Oromo the Largest Nation of Africa. Human Rights violations and Genocide against the Oromo people in Ethiopia, Oromummaa, Self determination, The Colonizing Structure & The Development Problems of Oromia, Theory of Development, Tyranny, Uncategorized.
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‘Recognising that poor countries are poor because they have extractive institutions helps us understand how best to help them. It also casts a different light on the idea of foreign aid. We do not argue for its reduction. Even if a huge amount of aid is siphoned off by the powerful, the cash can still do a lot of good. It can put roofs on schools, lay roads or build wells. Giving money can feed the hungry, and help the sick — but it does not free people from the institutions that make them hungry and sick in the first place. It doesn’t free them from the system which saps their opportunities and incentives. When aid is given to governments that preside over extractive institutions, it can be at best irrelevant, at worst downright counter-productive. Aid to Angola, for example, is likely to help the president’s daughter rather than the average citizen. Many kleptocratic dictators such as Congo’s Mobutu Sese Seko have been propped up by foreign aid. And it wasn’t foreign aid that helped to undermine the apartheid regime in South Africa and got Nelson Mandela out of prison, but international sanctions. Those sanctions came from pressure on governments — including the British government — that would have preferred not to see them implemented. Today it is no different. Governments don’t like cutting their ties to dictators who open doors for international business, or help their geopolitical agendas. Pressure needs to come from citizens who do care enough about international development to force politicians to overcome the easy temptation of short-run political expediency. Making institutions more inclusive is about changing the politics of a society to empower the poor — the empowerment of those disenfranchised, excluded and often repressed by those monopolising power.’ –Daron Acemoglu and James A. Robinson,  The Spectator magazine, 25th January 2014

Daron Acemoglu and James A. Robinson in their articles in  The Spectator put forward the following interesting analysis  regarding what is really at stake and leading issues in Africa’s development problems. They brought to our attentions why aid has failed and proposed how the predicaments can be tackled:-

David Cameron speaks compellingly about international aid. Eradicating poverty, he says, means certain institutional changes: rights for women and minorities, a free media and integrity in government. It means the freedom to participate in society and have a say over how your country is run. We wholeheartedly agree and were flattered to see the Prime Minister tell this magazine that he is ‘obsessed’ by our book on the subject, Why Nations Fail: The Origins of Power, Prosperity, and Poverty. But diagnosing a problem is one thing; fixing it another. And we don’t yet see the political will — in Britain or elsewhere — that could turn this analysis into a practical agenda.

The British government is strikingly generous in foreign aid donations. It spent £8.7 billion on foreign aid in 2012 — which is 0.56 per cent of national income. This is to rise to £11.7 billion, or 0.7 per cent of national income, next year. But if money alone were the solution we would be along the road not just to ameliorating the lives of poor people today but ending poverty for ever.

The idea that large donations can remedy poverty has dominated the theory of economic development — and the thinking in many international aid agencies and governments — since the 1950s. And how have the results been? Not so good, actually. Millions have moved out of abject poverty around the world over the past six decades, but that has had little to do with foreign aid. Rather, it is due to economic growth in countries in Asia which received little aid. The World Bank has calculated that between 1981 and 2010, the number of poor people in the world fell by about 700 million — and that in China over the same period, the number of poor people fell by 627 million.

In the meantime, more than a quarter of the countries in sub-Saharan Africa are poorer now than in 1960 — with no sign that foreign aid, however substantive, will end poverty there. Last year, perhaps the most striking illustration came from Liberia, which has received massive amounts of aid for a decade. In 2011, according to the OECD, official development aid to Liberia totalled $765 million, and made up 73 per cent of its gross national income. The sum was even larger in 2010. But last year every one of the 25,000 students who took the exam to enter the University of Liberia failed. All of the aid is still failing to provide a decent education to Liberians.

One could imagine that many factors have kept sub-Saharan Africa poor — famines, civil wars. But huge aid flows appear to have done little to change the development trajectories of poor countries, particularly in Africa. Why? As we spell out in our book, this is not to do with a vicious circle of poverty, waiting to be broken by foreign money. Poverty is instead created by economic institutions that systematically block the incentives and opportunities of poor people to make things better for themselves, their neighbours and their country.

Let us take for Exhibit A the system of apartheid in South Africa, which Nelson Mandela dedicated himself to abolishing. In essence, apartheid was a set of economic institutions — rules that governed what people could or could not do, their opportunities and their incentives. In 1913, the South African government declared that 93 per cent of South Africa was the ‘white economy’, while 7 per cent was for blacks (who constituted about 70 per cent of the population). Blacks had to have a pass, a sort of internal passport, to travel to the white economy. They could not own property or start a business there. By the 1920s the ‘Colour Bar’ banned blacks from undertaking any skilled or professional occupation. The only jobs blacks could take in the white economy were as unskilled workers on farms, in mines or as servants for white people. Such economic institutions, which we call ‘extractive’, sap the incentives and opportunities of the vast mass of the population and thereby keep a society poor.

The people in poor countries have the same aspirations as those in rich countries — to have the same chances and opportunities, good health care, clean running water in their homes and high-quality schools for their children. The problem is that their aspirations are blocked today — as the aspirations of black people were in apartheid South Africa — by extractive institutions. The poor don’t pull themselves out of poverty, because the basic ability to do so is denied them. You could see this in the protests behind the Arab Spring: those in Cairo’s Tahrir Square spoke in one voice about the corruption of the government, its inability to deliver public services and the lack of equality of opportunity. Poverty in Egypt cannot be eradicated with a bit more aid. As the protestors recognised, the economic impediments they faced stemmed from the way political power was exercised and monopolised by a narrow elite.

This is by no means a phenomenon confined to the Arab world. That the poor people in poor countries themselves understand their predicament is well illustrated by the World Bank’s multi-country project ‘Voices of the Poor’. One message that persistently comes across is that poor people feel powerless — as one person in Jamaica put it, ‘Poverty is like living in jail, living under bondage, waiting to be free.’ Another from Nigeria put it like this: ‘If you want to do something and have no power to do it, it is talauchi [poverty].’ Like black people in South Africa before 1994, poor people are trapped within extractive economic institutions.

But it is not just the poor who are thus trapped. By throwing away a huge amount of potential talent and energy, the entire society condemns itself to poverty.

The key to understanding and solving the problem of world poverty is to recognise not just that poverty is created and sustained by extractive institutions — but to appreciate why the situation arises in he first place. Again, South Africa’s experience is instructive. Apartheid was set up by whites for the benefit of whites. This happened because it was the whites who monopolised political power, just as they did economic opportunities and resources. These monopolies impoverished blacks and created probably the world’s most unequal country — but the system did allow whites to become as prosperous as people in developed countries.

The logic of poverty is similar everywhere. To understand Syria’s enduring poverty, you could do worse than start with the richest man in Syria, Rami Makhlouf. He is the cousin of President Bashar al-Assad and controls a series of government-created monopolies. He is an example of what are known in Syria as ‘abna al-sulta’, ‘sons of power’.

To understand Angola’s endemic poverty, consider its richest woman, Isabel dos Santos, billionaire daughter of the long-serving president. A recent investigation by Forbes magazine into her fortune concluded, ‘As best as we can trace, every major Angolan investment held by dos Santos stems either from taking a chunk of a company that wants to do business in the country or from a stroke of the president’s pen that cut her into the action.’ She does all this while, according to the World Bank, only a quarter of Angolans had access to electricity in 2009 and a third are living on incomes of less than $2 a day.

Recognising that poor countries are poor because they have extractive institutions helps us understand how best to help them. It also casts a different light on the idea of foreign aid. We do not argue for its reduction. Even if a huge amount of aid is siphoned off by the powerful, the cash can still do a lot of good. It can put roofs on schools, lay roads or build wells. Giving money can feed the hungry, and help the sick — but it does not free people from the institutions that make them hungry and sick in the first place. It doesn’t free them from the system which saps their opportunities and incentives. When aid is given to governments that preside over extractive institutions, it can be at best irrelevant, at worst downright counter-productive. Aid to Angola, for example, is likely to help the president’s daughter rather than the average citizen.

Many kleptocratic dictators such as Congo’s Mobutu Sese Seko have been propped up by foreign aid. And it wasn’t foreign aid that helped to undermine the apartheid regime in South Africa and got Nelson Mandela out of prison, but international sanctions. Those sanctions came from pressure on governments — including the British government — that would have preferred not to see them implemented.

Today it is no different. Governments don’t like cutting their ties to dictators who open doors for international business, or help their geopolitical agendas. Pressure needs to come from citizens who do care enough about international development to force politicians to overcome the easy temptation of short-run political expediency.

Making institutions more inclusive is about changing the politics of a society to empower the poor — the empowerment of those disenfranchised, excluded and often repressed by those monopolising power. Aid can help. But it needs to be used in such a way as to help civil society mobilise collectively, find a voice and get involved with decision-making. It needs to help manufacture inclusion.

This brings us back to David Cameron. When answering a question at New York University almost two years ago, he put it perfectly. ‘There is a huge agenda here,’ he said. It is time to ‘stop speaking simply about the quantity of aid’ and ‘start talking about what I call the “golden thread”.’ This, he explained, is his idea that long-term development through aid only happens if there is a ‘golden thread’ of stable government, lack of corruption, human rights, the rule of law and transparent information.

As the Prime Minister says, this is a very different thing to setting an aid spending target. Promoting his golden thread means using not just aid but diplomatic relations to encourage reform in the many parts of the world that remain in the grip of extractive institutions. It means using financial and diplomatic clout (and Britain has plenty of both) to help create room for inclusive institutions to grow. This may be a hard task — far harder than writing a cheque. But it is the surest way to make poverty history.

Daron Acemoglu and James A. Robinson are the authors of Why Nations Fail, which David Cameron last week declared one of his five favourite books of all time.
Read the full text of this article @:

http://www.spectator.co.uk/features/9121361/why-aid-fails/

This article first appeared in the print edition of The Spectator magazine, dated 25 January 2014

Further references:

Amartya Sen: Poverty and the Tolerance of the Intolerable

http://www.prospectmagazine.co.uk/economics/amartya-sen-poverty-and-the-tolerance-of-the-intolerable/#.UuhQB9LFLf9

http://richmedia.lse.ac.uk/publiclecturesandevents/20130122_1830_povertyToleranceIntolerable.mp3

 

Copyright © Oromianeconomist 2014 and Oromia Quarterly 1997-2014. All rights reserved. Disclaimer

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Poverty, Deprivation, Capability and Economics August 30, 2013

Posted by OromianEconomist in The Colonizing Structure & The Development Problems of Oromia, Uncategorized.
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World map showing countries by nominal GDP per...

World map showing countries by nominal GDP per capita in 2008, IMF estimates as of April 2009. Sbw01f’s work, but converted to an SVG file instead. (Photo credit: Wikipedia)

‘It has to be known that  the social structures, the power relations, that have generated and continue to generate poverty.’

In the present world, poverty, particularly   as it is experienced in the developing countries, has become the main topic to a great deal of discussion among economists and policy
makers, and there have been various campaigns  going on to overcome it: “to make poverty history.” The United Nations Millennium Development Goals (MDGs) project is for front of these undertakings. In these makings, the issue is absolute deprivation, and the current widely accepted standard defines poverty as living on less than $2 per day and extreme poverty as living on less than $1 per day. The $2 per day and $1 per day figures are in terms of 1990 purchasing power. The World Bank uses these standards to report each year on the number of people living in poverty and in extreme poverty. The definition of poverty in terms of absolute deprivation may make good sense. When people do not have the basic necessities – the food, the shelter, the clothing – that they need to lead a reasonable life, they are living in poverty. Although we might not agree over the exact baseline.  There may look nothing wrong with the term.
However, there are problems with this absolute deprivation term of poverty. Primarily, there is the problem of whether or not an income measure can actually handle what we understand by people living in an ‘unreasonable’  condition of deprivation; not all the things that
make for a reasonable existence can be directly  transformed to purchasable goods and services. Besides, there is the problem of what we mean by ‘deprivation’. Of course, economic well-being – cannot be properly  measured and clearly understood by a single, absolute measure. In particular, the meaning cannot be properly  captured by  individual’s or a people’s absolute level of income. Actually, this issue has been widely recognized by the UN’s Human Development Index (HDI), Sen’s capabilities concept, and to some extent by the Millennium Development Goals (MDGs) campaign. Achieving an income goal alone does not eliminate poverty. A closely related issue  is that poverty (or well-being) cannot be captured properly by any single measure or single combination of measures, such as the HDI. Both the terms of poverty and economic well-being do not take into account issues of inequality in the distribution of income or the distribution of other measures of well-being. This failure to take into account issues of distribution in defining poverty (economic well-being) is conceptually and practically  problematic. If poverty is understood in absolute terms without consideration of distributional issues, the social structures that generate poverty tend to be ignored. It has to be known that  the social structures, the power relations, that have generated and continue to generate poverty. As  Arthur MacEwan  of University of Massachusetts Boston argues: ‘To a large extent, the poor are poor because they lack power, and they lack power because they are poor. When power is brought into consideration, the focus of policy shifts towards such issues as land reform and the effective control of state actions – i.e., of the underlying factors that determine spending on health care, education and other social services. The problem of poverty, then, would be approached as a socio-political problem, not simply as a technical problem. (Technical changes can bring about changes in socio-political relations, and that is one of the reasons, in addition to their direct impacts, that they are often good. But technical solutions are less likely to be effective when they are implemented without consideration of power relations.’  For instance, as studies on the Horn of Africa recognize, the colonizing Abyssinian Ethiopian structure has been  a very serious development problem in Oromia. In recent debates the UN and other international organizations are taking human rights issues to a center stage in the discussions of eliminating poverty as it is to  define the post 2015 actions. Actually, individual human rights and collect (group) rights must be at the center stage  in processes of poverty eliminations and achieving development. A person can be  socially and economically deprived and made incapable to achieve life goals not only as individual but also because he/she is a member of a group.  That is what we have learnt from the experiences and studies on  indigenous people such as the Oromo nation under Ethiopian social and political structures.

The discussion of  poverty may be as old as disciplines of economics and philosophy.  Economists  and philosophers including  Adam Smith, Karl Marx, John Rawls, Amartya Sen, and many more have discussed the subject. The capabilities concept of economic well-being has been established  and extensively discussed by Amartya Sen. He maintains that “…the right focus for assessing standard of living is … something that may be called a person’s capability…., the capability to function …that comes closest to the notion of standard of living.”  The following site is interesting  further discussions: http://scholarworks.umb.edu/cgi/viewcontent.cgi?article=1003&context=econ_faculty_pubs&sei-redir=1&referer=http%3A%2F%2Fwww.bing.com%2Fsearch%3Fq%3Dpoverty%252C%2520capability%2520and%2520deprivation%253Awhat%2520economists%2520say%26pc%3Dconduit%26ptag%3DADE7BA551541340B0B5F%26form%3DCONOMX%26conlogo%3DCT3210127%26ShowAppsUI%3D1#search=%22poverty%2C%20capability%20deprivation%3Awhat%20economists%20say%22

Another Interesting current economic article on the subject of poverty is rebeloged  here with kind acknowledgement to the author:

“How important should the subject of poverty be within the discipline of economics? Some economists appear to think it is a very small issue compared to the magnificent mathematics of general equilibrium theory. Others believe that economics should fundamentally be about the sources of human well-being and misery, and that understanding poverty is absolutely fundamental for economics. How should we try to sort this out? Among the contemporary economists who have given the greatest attention to poverty and deprivation, Amartya Sen and Jean Dreze are particularly outstanding. Their research on well-being, quality of life, and hunger set a standard for the point of viewthat says that life quality and deprivation need to be at the top of the list of economic research goals. Here I’m thinking of books like Inequality ReexaminedPoverty and Famines: An Essay on Entitlement and Deprivation, and Hunger and Public Action. The neoclassical free market purists stand at the other end of the garden.  The economists of the Chicago School put primary emphasis on the beneficent effects of untrammeled market behavior, and they give little attention to the “market imperfections” that poverty and deprivation represent. (The word “poverty” does not occur in the index of John Van Overtveldt’s good intellectual history of the Chicago School, The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business.) Poverty seems to be viewed as a normal and fair result of the workings of market institutions: some people make large contributions and earn high income, and others make small or zero contributions and earn low income.”  Daniel Little, Rebloged from http://understandingsocietyglobaledition.wordpress.com/2013/08/29/poverty-and-economics/ read more from http://understandingsocietyglobaledition.wordpress.com/2013/08/29/poverty-and-economics/

As disccused in the above sources, poverty is not only a matter of lack of income.  And also economic  growth alone does not alleviate poverty.  As it has been analysed in following sources: “The problem with seeing poverty only through the lens of income is that it leaves economic growth as the only option to remove poverty. The underlying assumption is that the poor will be someday and somehow able to earn enough money to take care of all their needs, starting with having sufficient food. The problem is that the poor also lack skills to earn sufficient money, they are denied credit or loan by the banks, they have no access to quality education and healthcare facilities, and face social discrimination and political marginalization. Therefore, it is rather naive to expect that just because the economy is doing well, they will suddenly start having good income and come out of poverty. Thanks to the efforts of eminent economists such as Indian Nobel laureate Amartya Sen and late Dr Mahbub ul Haq of Pakistan, better ways of measuring poverty and human well-being than income have emerged. If the UNDP’s Human Development Index (HDI) launched in 1990 provided the first global tool to probe the standard of living, a bigger thrust was given in 2010 by the Multidimensional Poverty Index (MPI) that uses 10 different indicators to probe various deprivations the poor face. An application of the MPI analysis on the above two countries reveals an entirely different picture. Ethiopia has 90 percent poverty while Uzbekistan reveals just 2 percent multidimensional poor. What we learn from this is that the society in Uzbekistan looks after its people much better than the Ethiopian society. Therefore, poverty is better understood in terms deprivations, not lack of income. Economic Growth Alone is not “Development.” The real purpose of development is to enhance the well being of people and raise their standard of living, for which economic development is an important tool. However, this tool has been converted into an end in itself. Another popular view sees “development” as technological development; other contemporary concepts of development are industrialization and increasing the GDP growth (and keep doing it forever!). The way international business is being steered through global treaties, it appears that the world is being converted into a big bazaar and people into mere tools of production and consumption. The per capita consumption has emerged as modern measure of development and hence, of the well being of people. Hence, people of “developed” nations are the biggest consumers on the planet. Rest of the world is catching fast to beat them in this competition.” http://goodpal.hubpages.com/hub/Looking-at-Poverty-Beyond-Lack-of-income

Poverty is powerlessness, lack of representation and freedom. Poverty is a call to action – for the poor and the wealthy alike – a call to change the world so that many more may have enough to eat, adequate shelter, access to education and health, protection from violence, and a voice in what happens in their communities. Poverty is the state of being without, often associated with need, hardship and lack of resources across a wide range of circumstances.’http://www.fightpoverty.mmbrico.com/poverty/what.html

“Since poverty is often so linked with human development, or lack of it, the 1996 report took a special look at poverty and concluded that income poverty is only part of the picture. “Just as human development encompasses aspects of life much broader than income, so poverty should be seen as having many dimensions,” says the report. As a result, the report introduced a new, multidimensional measure of human deprivation called the capability poverty measure, (CPM). The CPM focuses on human capabilities, just as human development index does. Instead of examining the average state of people’s capabilities, it reflects the percentage of people who lack basic, or minimally essential human capabilities, which are ends in themselves and are needed to lift one from income poverty and to sustain strong human development. The CPM considers the lack of three basic capabilities. The first is the lack of being well nourished and healthy, represented in this case by the proportion of children under five years who are underweight. The second is the lack of capability for healthy reproduction, shown by the proportion of births unattended by trained personnel. The third is the lack of capability to be educated and knowledgeable, represented by female illiteracy. The composite index emphasizes deprivation of women because, says the report, “It is now well known that the deprivation of women adversely affects the human development of families and of society.” Comparing the new capability poverty measure with the income poverty index, the report found that while 21 per cent of the people in developing countries are below the income poverty line, 37 per cent face capability poverty.   That is, 900 million people in developing countries are income poor, but 1.6 billion are capability poor.”    http://www.womenaid.org/press/info/poverty/cpm.html