Risk in International Development

Bill Gates explains Why Jeffrey Sachs Matters in a recent article reviewing The Idealist, by Nina Munk (HT to Mahmud Naqi for sending me the article). The book (which I have not read) explores the successes and failures of Sachs’ Millennium Villages Project, which is highly contentious in development circles. The article is nuanced, but here’s Gates’ main point:

In the world of venture capital, a success rate of 30 percent is considered a great track record. In the world of international development, critics hold up every misstep as proof that aid is like throwing money down a rat hole. When you’re trying to do something as hard as fighting poverty and disease, you will never achieve anything meaningful if you’re afraid to make mistakes. I greatly admire Sachs for putting his ideas and reputation on the line.

I agree with the sentiment of this argument, but I think it lacks a crucial nuance. Yes, it’s important to experiment with new and risky ideas in international development and to accept that in so doing, some (and perhaps many) projects will fail. But the key is that the way we should measure risk in international development is not only by the chance a project will fail, but also by the consequences of potential project failure.

If failure simply means the realisation that a particular aid intervention is ineffective, that is perfectly acceptable. The problem arises when project failure means that aid recipients’ lives are made worse. If beneficiaries have made major changes because of an aid project – say, growing new crops, or starting a risky business venture – then project failure might mean the disappearance of their livelihood. In other situations, in particular with the donation of goods, the intervention may have distorted markets (see, for example, the cases of shipping rice to Haiti or the TOMS shoes model), and so if the project fails, the good may no longer be available at all in the private market.

I count myself amongst the sceptics of aid, at least as it is currently practiced by many development organisations. However, I do not measure aid ineffectiveness by the number of failed projects, but by the number of bad projects, including well thought-out but high-risk projects whose failure may make people’s lives substantially worse. Of course it’s impossible to completely insulate against negative externalities, but every effort must be taken to mitigate these potentially disastrous effects. Gates himself points out that this does not seem to have happened in the case of the Millennium Villages Project:

Of course, Sachs knows that it’s critical to understand market dynamics; he’s one of the world’s smartest economists. But in the villages Munk profiled, Sachs seems to be wearing blinders. (…) I am surprised by how little Sachs dug into country budgets and that he didn’t work to convince governments to commit to additional taxation to fund more of these interventions domestically. Given his background, he surely excels in that area.

Like Gates, I admire Sachs’ willingness to take on ambitious and risky projects. But the grander the project, the greater the potential damage should the intervention fail. And so I cannot forgive Sachs his apparent lack of basic groundwork in the Millennium Villages Project.

Header image from The Lancet.

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