It's not about the money - Case Study 837

Well that door just got slammed pretty hard shut. I have been tracking Jeffrey Sachs' Big Push hypothesis and latter experimentation for many years. It was popular in academia and blessed among the mandarins. I was not convinced of his ideas in the first place and therefore am not surprised at the outcomes reported below. However, kudos for trying. Many things which we believe, turn out not to be true in reality. But also, many things we doubt turn out to be true. We don't know till we try.

From The Big Push Failed by Alex Tabarrok.

In 2004, Jeff Sachs and co-authors revived an old theory to explain Africa’s failure to develop, the poverty trap, and an old solution, the big push.

Our explanation is that tropical Africa, even the well-governed parts, is stuck in a poverty trap, too poor to achieve robust, high levels of economic growth and, in many places, simply too poor to grow at all. More policy or governance reform, by itself, will not be sufficient to over-come this trap. Specifically, Africa’s extreme poverty leads to low national saving rates, which in turn lead to low or negative economic growth rates. Low domestic saving is not offset by large inflows of private foreign capital, for example foreign direct investment, because Africa’s poor infrastructure and weak human capital discourage such inflows. With very low domestic saving and low rates of market-based foreign capital inflows, there is little in Africa’s current dynamics that promotes an escape from poverty. Something new is needed.

We argue that what is needed is a “big push” in public investments to produce a rapid “step” increase in Africa’s underlying productivity, both rural and urban.

Simplistically, this is the longstanding argument in some corners that productivity failures result from lack of resources. Provide the people resources and the problems will resolve themselves. This has been proven not to be true time and again, but the hope flames on. Just transfer money and the problem will be solved.

The alternative explanations to the claim that all that stands in the way of development is more resources are legion - quality of institutions, technology heritage, path dependence, culture, IQ, property protections, system of law, etc., etc.

The desperate desire has been to keep the aid pipeline flowing by proving that access to capital (resources) is all that is required. Access to capital combined with well intended aid experts. From Tabarrok:

As the title of the blog might suggest, I was skeptical. But even if a big push wasn’t exactly the right idea, I’m all in favor of Big Ideas and Sachs pursued his Big Idea with tremendous skill and media savvy. Pilot programs were soon up and running and then quickly expanded into full programs. In June 2010, the Millennium Villages Project released its first public evaluation and that is when things started to fall apart.

The initial MVP evaluation claimed great success but simply compared some development indicators before and after in the treated villages without comparing to trends elsewhere. In 2010 such a study was completely out of step with contemporary practices in impact evaluation. Red flag! Clemens and Demombynes showed that comparing to trends elsewhere significantly moderated the impact. A second MVP paper was published in the Lancet but then was quickly retracted when Bump, Clemens, Demombynes and Haddad demonstrated that it had significant errors. Clemens and Demombynes wrote a summary piece on the controversy then in an astounding and under-reported scandal the MVP tried to stifle Clemens and Demombynes. The MVP, with Jeff Sachs at the head, also sicced their lawyers on Nina Munk and her book, The Idealist: Jeffrey Sachs and the Quest to End Poverty. More red flags.

Yet, despite all of this controversy and bad behavior, the MVP project continued to move ahead and in 2012, the UK Department for International Development (DFID) funded US $11 million into an MVP in Northern Ghana that ran until December 2016. Under the auspices of the DFID, we now finally have the first in-depth, independent evaluation of one MVP project and it doesn’t look great. The project did some good but the big push failed and the good that was done could have been done at lower cost.

See Doing Bad by Doing Good: Why Humanitarian Action Fails by Christopher J. Coyne for related discussions.

The conclusions about the effectiveness of the MVP in Northern Ghana are not encouraging.

Overall, the MVP in northern Ghana did not achieve the overall MDG target to reduce extreme poverty and hunger at the local level.

[snip]

In our cost-effectiveness analysis, we demonstrate that the project has so far not yielded sufficiently positive results, and what has been achieved could have been attained at a substantially lower cost (even when we take account of investments made for future usage). As such, the project seems to have fallen short of producing a synergistic effect; and the impact is not large enough for the project to be regarded as cost-effective, even when each sector is assessed independently of the others.

[snip]

Perhaps then, the most concerning findings are the early indications that the MVP approach will be difficult to be sustained by district institutions and at the community level; and there are signs that any gains made under the project are already being undermined.

I think access to capital does actually play some critical role under some very particular conditions (think of developed economies which have been destroyed such as Japan and Germany in WWII.) There might be other very particular circumstances to kick start developing economies (rather than resurrecting pre-existing developed economies) but it is not, as the evaluation of MVP proves, a universal panacea. Throwing money at the problem might work, we just don't know under what circumstances and they are apparently quite limited circumstances.

The continued failure of MVP will likely go unremarked outside economic circles, and maybe even then only in economic development circles.

Meanwhile in the wider realm we will continue to debate minimum wages, universal basic income, and the other related ideas, all generally sourced in the notion that an absence of money is the explanation for failure despite all the evidence pointing to the failure of that explanation of failure.