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Illustration by Krieg Barrie

After the magic bullet

Who's accountable on the business end of a government giveaway?

Issue: "New breed of homeless," Feb. 28, 2009

Results don't always match expectations, a lesson that's easier for individuals to swallow than governments. Take poverty fighting. Poor nations with potentially rich soil have given away fertilizer as an incentive for farmers to produce higher yields. The World Bank and liberal aid gurus like Jeffrey Sachs have long argued that spending Western money to subsidize fertilizer is a sound investment. As a result, in countries like Zambia fertilizer subsidies make up 2 percent of the government's budget.

But when economists at MIT's Poverty Action Lab actually investigated fertilizer use, they found that free fertilizer often went unused by disadvantaged farmers while large-scale farms overused it, even in ways that hurt the environment.

So make 'em all pay! Well, not so fast. When destitute farmers must buy fertilizers the researchers noted a trend that economists call "hyperbolic discounting"-or, as MIT economist and lead researcher Esther Duflo puts it, "wanting everything today." In other words, they prefer the cash in their pocket today from a small crop yield to the promise of more cash next year from a larger yield. The solution? Small time, limited discounts in the price of fertilizer at harvest time-when farmers have the cash and know that buying fertilizer is a real bargain. By ending full subsidies, a country can grow two agribusinesses instead of one: higher-yielding farms plus fertilizer producers.

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A global recession is focusing the minds of public and private aid donors who see their dollars drying up. Their overdue emphasis on results and accountability seems lost on lawmakers fresh from an economic stimulus package that's the largest spending bill in U.S. history as they now turn to more bailout for U.S. banks.

South Carolina governor Mark Sanford zeroed in on the larger problem with the government taking on debt to pay off debt, saying we are headed toward "a savior-based economy," where "it matters not how good your product is to the consumer but what your political connection is to those in power."

This is a problem that the world's poor and their so-called benefactors (remember the ONE campaign?) have rehearsed too well. Now some humanitarians are admitting that savior-based spending schemes lacking built-in evaluation and accountability not only fail but do more harm than good.

"Nobody wants to evaluate programs because program supporters need to show success," said Duflo at a recent gathering at New York University (NYU). "We don't evaluate because evaluation is difficult. But look at where that's taken U.S. car manufacturers."

Organizers planned for about 100 to show up at the NYU event where Duflo spoke Feb. 6, but they had to find a new venue for over 500-from grad students to World Bank analysts and aid experts from the United States, Europe, and Canada. The event was headlined "What would the poor say?" William Easterly, a former World Bank economist who teaches at NYU and authored The White Man's Burden, an argument for bottom-up solutions to global poverty, told the audience, "We should be judging aid with this question because aid agencies would be better off if they were rewarded for satisfying the customer."

Aid donors who listen to their "customers" are learning that it's not enough to distribute mosquito nets in malaria-prone countries. They have to know what prompts mothers to actually spread the nets over a child's bed-when the nets are free or when they have to pay for them? It's not enough to send monthly stipends to enable children go to school. If teacher absentee rates remain high (24 percent in India) then teachers need incentives too or students won't learn.

Says Duflo: "The worst mistake we have been making over and over again . . . is not to learn from past mistakes, and in fact not to give ourselves the chance to learn properly from experience. Successions of well-meaning academics and policy makers are looking for the magic bullet that will get rid of poverty. The magic bullet is then tried out and everybody is enthusiastic about it for a little while. Objections start to accumulate, problems creep up, and the magic bullet is abandoned for the next one." Now is the time to hold U.S. lawmakers accountable before the next magic bullet crosses the president's desk.

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