The Dictator's Handbook (30 page)

Democrats are often perceived as being in the driver's seat and dictating terms to autocrats. However, as in other matters, they are often the ones who are constrained. They need to deliver the policies their backers want. If they try to cut back on the aid they give or impose strict conditions, then autocrats simply end the policy concessions.

Subsequent US relations with Pakistan offer clear evidence of this pattern of waning and waxing aid. As we saw, aid went up following the terrorist attacks of September 11, 2001, but then it began to taper as the war against the Taliban in Afghanistan seemed to have been won by 2003. Once Pakistan increasingly became a safe haven for the Taliban and Al Qaeda, everything changed. Pakistan now found itself in a tough spot. If the government opposed the Taliban who were infiltrating the Pakistani frontier with Afghanistan, they were likely to face a domestic insurgency. If they supported the Taliban they would face severe pressure from the United States. This dilemma offered an opportunity for Pakistan to make greater demands for US aid if Pakistan's government was to be induced to resist the Taliban. The demands were made but the US Congress balked at giving Pakistan more, noting that much American aid to Pakistan was diverted to uses not intended by the Congress. These uses include the disappearance of some money and channeling much of the rest by Pakistan to stave off what the Pakistanis perceive to be the greater threat from India than from Muslim fundamentalist militants.

The United States, disgruntled with Pakistan, did not initially agree to pay the higher price needed to get the Pakistani government to pursue the Taliban and Al Qaeda militants within Pakistan. What
was the upshot? As we have learned to expect, the Pakistani leadership ignored US pressure and began looking for ways to work with the Taliban. Aid is basically a pay or don't play program. The United States wouldn't pay and Pakistan wouldn't play.

By 2008, the government of Pakistan's leader Asif Ali Zardari, was paying only lip service to going after the militants. The Bush administration, lacking more aid to offer, proved unable to change Zardari's mind. In fact, the second half of 2008 saw only a perfunctory effort by the Zardari government to fight the militants. There was a brief military offensive against the Taliban, starting on June 28 and ending in early July, with precisely one militant killed. After that, although the Taliban aggressively pursued their own territorial expansion in Pakistan, the Zardari government mostly looked the other way. Rather than fight the militants, Zardari's regime made a deal with the Taliban in February 2009, paying them about $6 million and agreeing to the imposition of Sharia law in the Swat Valley in exchange for the Taliban agreeing to an indefinite ceasefire. The ceasefire unraveled by May. By this time, the Zardari government seemed in trouble and the US government was fearful that the Taliban might take control of Pakistan altogether. In the face of such dangers, the price for aid had risen but so too had the desire in the United States to motivate the Pakistanis to try harder to beat back the Taliban.

Congress passed the Kerry-Lugar bill at the end of September 2009. It nearly tripled aid to Pakistan, increasing it to $1.5 billion. Even then the Pakistani government balked at taking the greatly increased aid because the bill included requirements that the Pakistanis be accountable for how the money was used. Facing resistance from Pakistan, Senator John Kerry clarified that the bill was not designed to interfere at all with sovereign Pakistani decisions; that is, he essentially assured the Pakistani leadership that the United States would not closely monitor use of the funds. Shortly after, the Pakistani government accepted the aid money and greatly stepped up its pursuit of militants operating within its borders. By February 2010 they had captured the number two Taliban leader, but, as we should expect, they have also been careful not to wipe out the Taliban threat. Doing so would just lead to a termination of US funds.

The US government, for its part, is frustrated that even with $1.5 billion in aid, Pakistan is not sufficiently motivated to beat back the Taliban. As a result, the United States has stepped up drone attacks and the use of the American military to pursue the Taliban within Pakistani territory, much to the public—but we doubt private—dismay of the Zardari government. This is all just the dance of the donors and the takers, the recipients looking for as much money as possible and the donors looking for a highly salient, costly political concession: the destruction of the Taliban.

Perhaps this is distasteful to those who would like to maintain the fiction that aid is about alleviating poverty. Naturally some aid is given with purely humanitarian motives, such as that given after a natural disaster. Yet it is hard to reconcile the large scale of aid flows to Egypt and Pakistan with idealistic goals. If aid actually helped the poor, then we might expect the people in recipient nations to be grateful and hold donor nations in esteem. Nothing could be further from the truth. In return for its “benevolence” to Egypt and Pakistan, the United States is widely reviled by the people in those two countries; and with good reason.

In 2002, Pew undertook a study of values and opinion in forty-two nations. One question asked about people's view of the United States. In Pakistan 69 percent of people reported an extremely unfavorable view of the United States. In Egypt the figure was 79 percent. In the other forty nations an average of only 11 percent of the people shared this extremely negative view of the United States. But then Pakistan and Egypt received an average of $1.6 billion in economic and military aid from the United States in 2002, while the other forty nations averaged only $97 million in aid. The pattern is borne out in detailed statistical analyses. People in nations receiving lots of US aid seem to hate the United States. Of course, much may have changed since 2002, and it would be fascinating to see whether our assessment continues to be borne out in future surveys.

Our account of aid may seem to paint the United States as international bad guy number one. But the United States is far from the only aid donor. While the United States is the largest overall donor, as a proportion of its economic size it gives relatively little, about 0.2 percent
of GDP. Scandinavian nations give over 1 percent of their economic output in foreign aid. Provided the policy rewards that a foreign power can provide to a democrat's supporters are worth more to the supporters than the rewards that could be directly purchased with the money, democrats support aid. Other nations and agencies buy favors too, if not perhaps on the same grand scale that the United States can afford. In fact, careful analysis shows that even the seemingly generous Scandinavians give aid in exchange for policy concessions rather than for altruistic reasons. They particularly like to use aid to gain trade concessions and prosocialist ideologies in recipient regimes.
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Aid agreements are notorious for being tied to conditions that help the donor. This means that the agreement often specifies how, and more importantly where, the money is spent. For instance, Germany might give a recipient money, but only if they use it to buy German tractors. This might seem an inefficient way to reward tractor manufacturers. However, international trade laws often forbid direct subsidies. Further, tied aid can bring future business, such as spare parts and service. Canada is notorious for high levels of tied aid, 60–75 percent of all its aid. Scandinavia and the UK claim to have the lowest levels of tied aid, but even there, informal tying is common. For instance, Denmark had allocated $45 million to repair ferries in Bangladesh. Rather than repair the ferries locally, Denmark proposed taking the ships to Denmark and repairing them there at four times the local cost. Amid protest from the Bangladeshi government, Denmark decided to simply cancel the whole scheme so neither the Bangladeshis nor the Danes benefited.

Just as the United States buys security and trade concessions with aid, and the Europeans trade aid for business concessions, so too does Japan. Whales need to fear Japanese benevolence. American voters like pork. In contrast, Japanese voters like blubber, and Japanese leaders have been working hard to deliver. In 1986, the International Whaling Commission (IWC) instituted a moratorium on the commercial hunting of whales. While this ban was popular with the people of most nations, the citizens of Iceland, Norway, and Japan want to resume hunting. Currently the Japanese hunt a small number of whales through a loophole that allows hunting for scientific research. These
whales, of course, end up being eaten. The Japanese government buys votes on the IWC with foreign aid. Recently, behind Japan's efforts, the IWC's membership has swelled to include nations with no history of whaling. Some of these recent members, such as Laos, Mali, and Mongolia, are landlocked. Japan's efforts have been rewarded with growing support for the resumption of whale hunting.

Example after example highlight the simple fact that aid is given in exchange for policy concessions far more readily and in far larger quantities than to reduce poverty and suffering. Following World War II, the rich nations seem genuinely to have thought they could free the world of poverty through their generosity. But no sooner did aid begin to flow than the politics of survival intruded on the noble goal of reducing misery. It should not be surprising that politics prevailed over benevolence. The record is unambiguous: foreign assistance has proven ineffective at alleviating poverty and promoting economic growth.

In the aftermath of World War II, Europe faced many challenges. Even the victors had suffered enormous human and economic losses. The United States launched a widespread relief program known as the Marshall Plan. Adjusted for inflation, the United States pumped over $182 billion in economic assistance into Europe between 1946 and 1952. Britain was the largest recipient, followed by West Germany, France, and Italy.
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The United States's goals were to build stalwart states aligned against communism. To achieve these ends, the United States needed an economically strong Europe. States that were willing to combat communism and follow US-dictated economic plans got aid; those not willing to do so, didn't.

Over the entire postwar period, total US economic assistance was nearly $1.3 trillion. Military aid over the same period was about $650 billion. To give some perspective, together these economic and military aid packages are roughly twice the size of the 2009 US stimulus package and Troubled Asset Relief Program (TARP) funds put together.

The success of the Marshall Plan proved hard to replicate. Trillions of dollars have been pumped into developing economies, yet there is precious little to show for it if we measure performance by assessing improvements in the quality of life. As we've seen, aid has done virtually nothing to relieve poverty.

Among policy makers, this record has prompted a fierce debate about the efficacy of aid. For critics, it is all too easy to point to many aid-dependent states in Africa that are poorer now than they were at independence. The development community likes to counter that such a direct comparison is unfair and argues that, while aid-dependent nations have performed poorly, they would have done even worse without aid. This defense, while wrong, is a sensible argument that needs to be taken seriously.

We cannot simply condemn the aid enterprise just because nations that received aid performed so poorly. To understand why, consider the following provocative statement:
hospitals kill!
There is plenty of evidence to support this claim. The likelihood of dying is much higher for a person in a hospital than for a person who is not. Of course, most of us instantly see the error in the evidence. The people in hospitals are sick. Healthy people are not to be found staying in hospitals. But this kind of error from looking at statistics without thinking about where they come from is all too common.

A colleague of ours, Peter Rosendorff, organized a petition and appealed to the Santa Monica City Council to put a crosswalk at a dangerous junction near his former house. The City Engineer said that quite to the contrary, the city was planning to take out all the crosswalks because their study showed that pedestrians were more likely to get killed in crosswalks than anywhere else. The children of Santa Monica should be grateful to Peter. He took the time to explain that the result was not because crosswalks were inherently more dangerous but rather, they are where people cross the road.

Assessing the true impact of hospitals or a particular treatment or drug is difficult unless we understand who is being treated. The medical community uses randomized drug trials to test the efficacy of medicines. Patients are randomly split into two groups: half get the medicine being tested and half get a placebo. The effectiveness of the
drugs is determined by comparing the performance of the two groups. If, alternatively, the medicine is given only to the sickest patients, then even if it is an effective treatment the group getting the medicine might do worse than the group that did not. Likewise, if aid agencies target aid at those nations facing the most serious problems, then aid could appear ineffective even if it was actually working.

Ideally, to assess the effectiveness of aid, the international community should undertake controlled experiments, giving aid to some randomly chosen nations and withholding it from others. But since it is unlikely aid will ever be allocated in this way, economists need to use complex (and controversial) statistical procedures to adjust the results according to which nations get treated. Rather than delve into these convoluted procedures, we offer some simple evidence based on the United Nations Security Council (UNSC).

The UNSC is composed of five permanent members (the United States, Russia, China, Britain, and France) and ten temporary members. The temporary members are elected for two-year terms on the Security Council and they are ineligible to be reelected in the two years after their term expires. Election to the UNSC is highly prestigious and, as it turns out, valuable too. Unfortunately, its value comes at a cost: bringing hardship for the people in many of the countries that get elected. On average, nations elected to the UNSC grow more slowly, become less democratic and experience more restrictions on press freedoms than eligible nations that are not elected.
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For instance, during a two-year term on the UNSC, the economy grows an average of 1.2 percent less for nations elected to the council than for nations not elected. Over a four-year period (the two years on the UNSC and the following two years of ineligibility), the difference in growth averages 3.5 percent less for elected UNSC members, that is, nearly 1 percent per year. The effects are much stronger in autocracies than democracies.