The Edge Financial Weekly. Feb 22, 2010
By Kal Joffres and Quek Sue Yian
As the dust settles, the picture emerging from Haiti is not a natural disaster but a man-made one. Haiti’s situation is about poorly constructed buildings, bad infrastructure, and ineffective government services. When a 7.0-magnitude quake violently shook California’s Bay Area in 1989, sixty-three people were killed. The death toll for Haiti’s 7.0-quake tops 200,000, according to the country’s PM.
Haiti is a jolting reminder of the failure of aid. If we are to avoid future disasters like Haiti, we need to think about how to significantly revamp how aid is delivered and what its lifecycle looks like.
For the poorest country in the western hemisphere, the real reconstruction work will not be moving rubble or fixing roads. Haiti’s reconstruction will be what happens after the flood of aid agencies recedes. The country may find itself back at square one, where it stood before the quake. The economy will face a tough transition away from donor money, with local economic patterns significantly altered by donor money and thousands of people once employed by the construction and NGO sectors faced with finding new jobs.
This is where Aceh finds itself today, five years after a tsunami that swept away large swaths of its capital city. There are important lessons Haiti can gain from Aceh but successfully applying them requires addressing some more fundamental problems in the aid sector.
Over the past five decades, governments have spent $2.3 trillion on aid with little lasting change to show for it. $1.5 billion of that aid has gone to Haiti since 1990. Since the quake, the country has become a cause célèbre for economists like William Easterly, who argue that aid agencies don’t know how to use aid to promote growth. Their research jars widely-held beliefs about aid: on average, there is no correlation between the amount of aid a country receives and its economic growth and there are no policy levers that consistently lead to increased growth.
With failures piling up in the aid docket, supporters advocated incremental improvements such as strengthening government institutions and creating aid “surges,” where a significant increase in aid spending would solve an array of problems simultaneously rather than in a piecemeal fashion. These approaches did not yield the expected benefits and, in some cases, worsened the situation. On average, stronger government institutions were no more effective at converting aid into economic growth. Big pushes in aid spending had no effect on growth until they reached 8% of GDP, at which point aid started having a negative effect on growth. Three key reasons underlie many of the difficulties with traditional aid.
The first reason development master plans haven’t worked is that they dubiously resemble utopian social engineering. While donor countries understand they cannot plan their own economic growth and that fixing major economic problems at once would be terribly naïve, this good sense is thrown out the window when it comes to developing countries. A number of experts have called for a foreign agency to do something similar in Haiti by supplanting the government and distributing supplies and basic services until the economy is back on its feet.
In fact, exactly the opposite is needed: modest, local initiatives. Outside professionals are not best-equipped to control development because they do not have the same local knowledge and understanding of needs as do aid recipients.
One NGO worker in Haiti remarked that local networks were some of the most effective distribution channels, particularly given the security situation: “The most striking thing I have noticed … is the level of organization and ingenuity among the displaced communities. Community members stand ready to distribute food and water to their neighbours, they are prepared to provide first aid and assist with clean-up efforts.” While emergency hospitals in Port-au-Prince overflowed with patients, frustrated doctors sat in an undamaged and largely empty hospital just outside the city.
The second key challenge with development planning is that donors don’t always have the right incentives. Early on in the Haiti crisis, the US was criticised for focusing aid on delivering basic meals. “So good on TV, but so ineffective at delivering the quantities of relief necessary,” wrote BBC correspondent David Loyn.
The third key challenge is that aid initiatives can radically alter the economy, adversely affecting its ability to grow. Food aid has often been blamed for hurting local farmers, sometimes putting them out of work for so long they have trouble restarting when food aid ends. Natural disasters reorient a significant portion of the economy towards construction. Competition for local staff and office space by international NGOs significantly increases local wages and rental, sucking talent out of local companies that generate real and sustainable income. This last problem, combined with the fact that wages it is unusual for wages to fall, continues to hobble foreign investment in Aceh.
Social enterprises, businesses created with the purpose of generating a broader social good, are critical to building a decentralised approach to development that takes advantage of local knowledge. Instead of planning solutions for economic development, the social enterprise approach creates an ecosystem of enterprises searching for ways to create value and social benefit in the economy. Social enterprises can also play a critical role as an economic bridge when donors and NGO money starts to leave.
The social enterprise approach encourages donors to create initiatives that meld with the way the local economy works. Rather than putting farmers out of business, donors should provide vouchers that allow people to purchase a good such as food from any provider, local or international. Rather than promoting particular solutions, the role of donors is to provide expertise, investment, and market access for local social enterprises.
A few key lessons emerged from Aceh about how to make this happen. First, external donors need to gradually decrease their funding over a period of two or three years rather than terminate it at the end of the budget year. Transitioning organizations off donor funding gives them a chance and an incentive to seek out new ways to generate income.
Second, psycho-social support is needed to empower people to become social entrepreneurs after a disaster situation. In Aceh, the tsunami and years of conflict meant that special assistance was needed to prepare people for doing business.
Ultimately, the new aid is about the need to place responsibility in local hands. The role of the Acehnese and the Haitians is to seek out opportunities to create culturally-appropriate businesses, build networks of trust and buy-in with other local communities, and demonstrate to those communities the successes that can had by developing social enterprises.
If we are going to do justice to those who perished in the Haiti’s economic disaster, aid agencies need to cease planning for others’ economic development and remake the aid industry into one that provides water to a garden of local entrepreneurs and social entrepreneurs crafting development solutions.