How Economists Kill People

by Daniel on February 8, 2005

I’ve mentioned Peter Griffiths and his book “An Economist’s Tale” before, and I’m going to mention it again in future, because it’s important. The book is a detailed case study of what Griffiths did when he was working for the government of Sierra Leone during a period when the World Bank suddenly got the free market religion. It’s a fantastic read, and by reading it you will get two valuable pieces of information; you’ll understand what economic consultants (those people whose jobs are advertised in the front bits of the Economist) actually do for a living, and you’ll understand the exact why and wherefore of what it is that people are complaining about when they protest against the Bretton Woods institutions and the Washington Consensus. Griffiths isn’t an “anti” in the normal sense; he makes clear at a number of points in the book that he’s actually in favour of free market reforms as the long term solution to a lot of development problems. But he is someone with very detailed, on-the-ground experience of the problem that Joe Stiglitz identified; the regrettable state of affairs that lets poor countries’ governments get bullied around by “third-rate students from first-rate universities”, with often disastrous results.

Below the fold is an article written by Peter, summarising some of the themes of the book; there are lots of good bits (including my favourite one-sentence summary of the moral dilemma of the economics profession, on which I will post anon) which aren’t mentioned there, so reading the article isn’t a substitute for buying the book. The book can be bought from Peter’s website; link above. Non-economists are not excused this one; if you can understand a Grisham novel you can understand this. It’s pacey, it’s exciting and it all really happened. It even has a happy ending (of a sort; given that the setting is the country of Sierra Leone, a genuinely happy ending was never on the cards).

(Full disclosure: I have no commercial or personal connection with Peter Griffiths other than through sending him an email to get this article. I bought the book with my own cash after seeing it advertised on the Zed Books website).

There is a lot of money to be made from a good famine

Peter Griffiths

One person, one economist, can get a government to change its policy. I have done it. Often. It is what I do for a living. My book, The Economist’s Tale (Zed Books) shows one case where I did it. This time, I stopped a famine.

The White Man’s Graveyard, they used to call Sierra Leone. It was the Black Man’s Graveyard when I worked there. Half the children born died of hunger and disease before they were five. Life expectancy was the lowest for any country in the world.

I hoped I could do something about it. I had come from England as a consultant to do an economic analysis of food policy in four months. I was starting from scratch, as this was one of the few countries in the world with no agricultural economics and marketing department.

Economics is about people, so I started by listening to people. First there were the courtesy visits to my employers, the Minister of Agriculture, the Permanent Secretary and the Director of Agricultural Planning. This was my attempt to find out the hidden agenda for my study, what they really wanted but would not put on paper. Then I spoke to everyone I could find working on agriculture; people in the Ministry of Agriculture, in the Ministry of Commerce, in the Central Bank; the foreign aid projects in Freetown and up country; the rice wholesalers in their dark warehouses behind the bazaar, and the market women squatting on the floor, bags of rice in front of them, bargaining with customers before measuring out a cup-full or two of rice the farmers in the paddy fields and the consumers in the streets and markets.

I must have spoken to well over two hundred people in the first two months. It would have been impossible in Britain, of course – it would have taken six months even to make the appointments. However, Sierra Leone’s telephone system had collapsed since independence, so nobody expected appointments. Instead I would knock on the door of a civil servant and say, “Hello! I am Peter Griffiths. I am doing a study of food policy for the Ministry of Agriculture. Can you help me please?”

Their faces showed their thoughts “Oh no! Not another consultant. I spoke to two yesterday, three the day before. I must have spoken to a thousand over the last ten years. I tell them all the same thing, and they put it in their reports, but nothing ever happens.”

Beneath this, better hidden, was another thought, “What is this white man doing, telling us how to run our country? I have the same degrees as him. I did my master’s at Oxford. And I have worked here for ten years and I know everything about the country. What he pays for one night in the Bintumani Hotel is what I am paid in a whole year. He gets more pay in one day than I get in three years.”

But they are a polite people, and they asked me to sit down. The underlying hostility made interviewing difficult, but depth interviewing is one of my professional skills. We exchanged pleasantries, and within five minutes they were telling me the same story they told all consultants. Within twenty minutes they were telling me things they did not realize they knew – and they did indeed have a lot of experience. Within forty minutes some of them were telling me about the politics within the Ministry and between Ministries. They told me what corruption was going on. Every person I spoke to gave me a different angle, a different perspective and the inconsistencies and gaps started to show. The big picture started to come together.

But I was not interviewing just for information. I was trying to get people into the state of mind that they would read my final report when I wrote it, and read it appreciatively. I was trying to show them that I was highly intelligent and that I understood what was really going on in the country. I did this by keeping my mouth shut, listening carefully and respectfully to what they said, and writing it down.

At the same time I was collecting reports and statistics. My experience of other countries was that there should be dozens of highly relevant reports, but I could only find a handful here. The statistics were appalling. For example, there were two statistical studies on food production. They disagreed by 80% on the total area planted to rice, and by 60% on the yield per hectare even though they used the identical methodology. There were no reliable figures at all on most of the economy.

I had to resort to detective work. Making sense of the statistical and other information was rather like doing a crossword puzzle. No bit of information had any credibility until there were several cross confirmations. Even then, the credibility grew as the cross confirmations were themselves confirmed by down confirmations. Some of the key information turned out to be things like seeing Japanese rice on sale in a village market, and asking a stevedore how much rice had been unloaded from a ship.

By the end of the first month I felt I was the only person who had a broad picture of the food situation in the country, though there were still lots of gaps and loose ends. I had talked to people from the Minister down. I had talked to people who were experts in different parts of the market. I had any statistics that were available. Everything was starting to come into a coherent model.

Then, I visited the Director of Agricultural planning for a routine chat. As I left, he handed me a paper, the minutes of a meeting between a World Bank team and the Ministry of Commerce.

I read it incredulously. It was a formal agreement that the Government of Sierra Leone would immediately stop importing food – and this in a country where Government imported half its staple food. The Government would also stop subsidizing food – when a quick look round the streets made it obvious that very few people were getting enough to eat even when food was subsidized. Government was also forbidden to keep a stockpile. Nothing I had read or heard could give any support for this, but neither the World Bank nor the Ministry of Commerce appeared to have made any effort to base their Agreement on logic or analysis. Neither of them had consulted the Ministry of Agriculture, which was responsible for food production, or me, the only person with the responsibility for examining food policy.

I sat down and did my analysis. The country was importing half its staple food, rice. People could not buy enough to live on at the subsidized price, so it could be argued that removing the present 25% subsidy would push prices beyond the means of half the population. But the reality was much worse than this. Over the last year, the leone’s value had collapsed against the dollar to a tenth of its previous level. The rice currently on sale in the markets had been bought when the leone was strong. Any new rice imports would have to be paid for with a very weak leone. This meant that any new imports would have to be sold in the markets at more than ten times today’s price in leones. But wages and salaries had not gone up, so nobody would be able to buy unsubsidized rice. And this obviously meant that no private trader would import rice that they could not sell. I visited them all to check and they told me vehemently that they would not touch rice imports with a bargepole.

The unavoidable conclusion was that when present stocks ran out, in four months time, there would be no imports. The country people would keep the rice they grew, so there would be no rice at all for the urban population. Starvation would start immediately. How many people would die before emergency aid could be arranged? Quarter of a million? Half a million?

I knew what was going to happen. I doubted if anybody else did. Certainly nobody else had the broad picture. If I did not act, there would certainly be a famine. Even if I did act, though, it was unlikely that I could change things.

Before I did anything, though, I tried to work out what I was up against. Why had the World Bank imposed this Agreement on Sierra Leone? Obviously because it was part of its general policy to push an extreme free market policy on the world. If an academic sitting in a university in the west makes enough unrealistic assumptions, he can prove that an economy works most efficiently when there is no government intervention, when there is a perfectly free market. A couple of maverick economists convinced Reagan and Thatcher that this was grounds for action. The action plan included getting countries to float their foreign exchange markets, get rid of subsidies, get rid of state companies and marketing boards, dismantle controls over markets and prices, and deregulate etc. etc. Some of these actions would have been very valuable as a part of a carefully planned and structured reform of a sector or industry, but as a nostrum that can be applied everywhere without thought, they were disastrous.

The organization was committed to this policy, and it put pressure on their staff to show that they were making countries adopt it. Any staff member who did not succeed in this would find that their career suffered, and they might lose their jobs. So the staff made it clear that any country that wanted a grant or loan would have to be seen to adopt this policy. They also made it clear to consultants that they would have to support this policy if they wanted to be employed by the World Bank.

Each staff member, each group was trying to get the policy implemented before the others. While there was some obscure theoretical justification for the general application of the free market, there was none for a piecemeal application, in this case applying it just to two parts of the agricultural and food sector, those that happened to be under the control of the Ministry of Commerce. It is rather as though one decided that a car would run better with a bigger engine, a different gearbox, a different suspension, and bigger wheels, and one compromised by only putting on a large right front wheel. It would run into the first lamppost.

I was frightened at the reaction World Bank staff would have if I said that they had blundered. It was odds on that I would be fired on the spot. Aid officials may be nice guys committed to the Third World, but when it comes to the crunch, they have no compunction about firing any consultant who does not support their personal ends. I had recently got into big trouble for the relatively minor sin of saying that an international aid agency’s pet project was grossly uneconomic: this meant that a desk officer would lose brownie points for not disbursing the target amount of loans. It was made clear to me that I would not work for that agency again.

The Government had done what the World Bank told them to, because they had no alternative. They were broke. Also they had seen what the international community had done to Ghana, just down the coast, when they did not toe the line. The Government had committed themselves to the Agreement, and they would not renege lightly. Like me, they did not know how World Bank officials would react if they were told that the Agreement was a disaster. It would certainly sour long-term relations between the Government and the Bank, even if, or especially if, the Bank was shown to have blundered. No, I could see that I would be an embarrassment to them.

Equally worrying was the knowledge that a lot of politicians, civil servants and marketing board officials stood to make money from a famine. Anyone who handles emergency aid in a famine situation can make enormous black market profits, at a time when people will pay all they have for enough rice to keep them alive for a month or two. Some of these people would be very upset if I spoke up. They only had to complain that I “could not get on with the locals” to get me sacked. It happens every day to aid workers who start to find out too much about corruption.

The threats were serious. Everyone in the aid business was well aware that only four years before Steve Lombard had been sacked from his FAO job in Tanzania after he prevented a famine. He was running an early warning project, and alerted the Ministry to the danger, so they could get food aid well before people started to go hungry. The Ministry sat on the information and did nothing. The food was running out and a famine situation was imminent, one where some people would make a lot of money. Steve got the information to the World Food Programme who told a very surprised President that a famine was imminent. He also leaked the information to the BBC World Service who told the Tanzanian people. Action was taken, just in time. The Tanzanians sacked Steve. FAO and the World Bank stood back and let them do it. A shocked Steve drank himself to death over the next three years.

Yes I was vulnerable. I was vulnerable because a lot of organizations had control over my future. The Minister, the Permanent Secretary, the Director, and probably a lot of other civil servants could have me sent out on the next plane. So could the World Bank, as they were paying my salary. I could not afford to upset the other aid agencies, as I was hoping to work for some of them in the future. Nor could I afford to get a reputation with the international consultancy firms as a troublemaker, because any future job with the aid agencies was likely to be through them. The only people I could afford to ignore were the people of Sierra Leone, the people who would starve.

From a career point of view, my optimum choice was to fake a backache and get flown home, leaving someone else to handle the famine when it hit.

I am squeamish though. I did act, quietly, politically and decisively. It meant putting my career on the line, though, and I have suffered for it. But I did convince the Government that the Agreement was a disaster, and they did renege on it. It was a damn near run thing though.

Peter Griffiths’ book on this affair, The Economist’s Tale: a consultant encounters hunger and the World Bank, is published by ZedBooks at £15.95 and can be bought online at www.griffithsspeaker.com

{ 2 trackbacks }

Crooked Timber » » Wolfowitz for the World Bank!
03.22.05 at 2:47 pm
Learning The Lessons of Nixon » The Pope has died
04.02.05 at 6:51 pm

{ 63 comments }

1

jet 02.08.05 at 9:48 pm

I’m starting to see where this hostility to free markets comes from. Thanks for the tip, I’m off to Amazon.

2

Guy 02.08.05 at 9:48 pm

Daniel,

Thanks for posting that article. Looks like a must-read.

3

John Emerson 02.08.05 at 10:05 pm

I haven’t read Stiglitz, but this matches what Palast has said.

Palast is an unperson among Democrats. I try very hard to continue as a Democrat, but free-trade dogmatism is wired in to all of the bright boys who plan to run the party (Yglesias is the poster child of that).

Oddly, Palast and the now-unperson Jesse Jackson were the main people trying to bring people’s attention to the fact that Gore won the 2000 election. Gore and the Democrats couldn’t be bothered.

Must-read.

4

abb1 02.08.05 at 10:37 pm

John Perkins says that they actually do it on purpose, rather than because they have been blinded by their ideology. Western companies want to make profit, IMF is their tool, ideology is an excuse. That local politicians are corrupt is a result, not the cause. Had the local politicians been not corrupt and tried to resist, they would’ve been removed somehow, possibly assassinated.

I don’t know if this is indeed how the mechanism works, or maybe Perkins is just trying to sell the book. But it seems quite plausible.

5

Abiola Lapite 02.08.05 at 10:40 pm

Well, at least Griffiths doesn’t pretend that the local politicians and bureaucrats are all wise, well-meaning folks who are simply robbed of all initiative by arrogant foreign experts; much of the suffering that one sees in the Third World comes down to the fact that

“a lot of politicians, civil servants and marketing board officials [stand] to make money”

when something goes wrong. Some of the things I’ve seen with my own eyes over the years are so outrageous that it’s extremely difficult for me to believe that any African “leaders” have their subjects’ interests at heart* – I came to libertarianism via real-world schooling in African political corruption, not by some tedious Randite doorstop.

*Nelson Mandela excepted.

6

dsquared 02.08.05 at 11:21 pm

Western companies want to make profit, IMF is their tool, ideology is an excuse

I am very lairy about Perkins, and I really don’t understand which Western company might have been hoping to make a profit out of deregulating the rice market in Sierra Leone. The only multinational with any material economic interest in SL was De Beers, and that is one company that certainly doesn’t want free markets to spread …

7

david 02.09.05 at 1:16 am

Prose is clunky, but it’s a very important and enjoyable book. Got it the last time you recommended it, and maybe will teach it next year. What’s happened to Griffiths since publication? Has anyone demanded that he stop questioning anybody’s integrity?

8

Nicholas Weininger 02.09.05 at 1:17 am

The article immediately brought to mind the following questions:

1. Where did the government of SL get the money for its imports and subsidies?

2. Where would that money have gone if the imports and subsidies had ended?

Perhaps these questions are answered in Griffiths’ book, but they don’t seem to be addressed in the article, and they’re quite crucial to seeing what’s really going on here, I think.

9

ponte 02.09.05 at 1:26 am

Nicholas Weininger:

Loan repayments, probably.

10

P O'Neill 02.09.05 at 2:14 am

One general tendency behind what he documents is that WB/IMF prescriptions tend not to come from first principles in economics, but rather a set of 2nd or Nth principles distilled down to mantras: flat tax, no subsidies, no tariffs etc. A first principles economist would want to sit down and model the situation at hand and think about all the interacting forces, and then derive a policy recommendation. It’s highly unlikely that something as blanket as “remove all subsidies and stop all food imports” would emerge from this process.

11

John Emerson 02.09.05 at 5:17 am

J.S., which comment thread did you think you were on? Proabably you should search out the right thread and then post again there.

12

Nick Caldwell 02.09.05 at 5:26 am

Well, J.S., I’m convinced! Time to become a right-wing death beast, then.

13

j.g. 02.09.05 at 5:47 am

Left and right, separate your critiques! I have solved the mystery of the Voynich MS on my homepage.

J.G.

http://jgoodwin.net

14

Walt Pohl 02.09.05 at 5:51 am

Daniel: Slightly off-topic, but I read “Inventing Money” after you recommended it on your blog. It was a really terrific book.

15

Peter Griffiths 02.09.05 at 9:32 am

To Nicholas Weininger.
Yes it is in the book. Grossly oversimplified we have: In the past money for subsidies and imports had come from an overvalued exchange rate = a tax on exports. This is an extremely effective way for a kleptocracy to cream off a large chunk of the GNP. There is a hidden subsidy on imports. They allocate import permits to themselves and sell on the black market. This system was collapsing at the moment described in the book.

To David
Curiously enough, since the book came out I haven’t got any World Bank consultancies, for the first time in my life. Also problems with other donors.
So I am setting up as a professional speaker, showing people that individuals can get action even when fighting governments or the World Bank

16

Darren 02.09.05 at 11:30 am

The article brought to mind the question … would they be in this mess if they hadn’t subsidised the food in the first place?

Isn’t the article really about moral hazard?

17

Movie Guy 02.09.05 at 11:34 am

I’m surprised that no one mentioned the implications of GATS or FTAA. That’s where the action is. WTO GATS is driving many of the concerns being voiced around the globe.

GATS, if read very carefully, might scare the hell out of you unless you buy into its arm twisting provisions. Nations, states, communities can lose their water distribution rights, as an example. Essentially, the bulk of government services are no longer protected from foreign private enterprise.Such services are generally required to be made available for deregulation and privatization.

http://www.citizen.org/trade/wto/gats/index.cfm

http://www.citizen.org/trade/wto/gats/articles.cfm?ID=9237

http://www.wto.org/english/docs_e/legal_e/legal_e.htm#services

http://www.wto.org/english/docs_e/legal_e/ursum_e.htm#mAgreement

http://www.citizen.org/trade/ftaa/index.cfm

Commodifying water and disciplining water systems in “trade” pacts would move this essential resource from the public trust and into the hands of distant multinational corporations, meaning local communities would lose control and have little recourse for bad service, higher prices and unsafe water.

Under GATS and proposed FTAA rules, if a municipality decides to experiment with privatizing water services by selling its operation to a foreign corporation, it is extremely difficult to bring the utility back under public control. For instance, if a municipality is later unhappy with a private company’s performance, and wants to take-back its water system, it not only must compensate the company under U.S. law, but the U.S. government must also compensate all potentially affected trading partners for their corporations’ lost business opportunities. This double jeopardy is geared toward “locking-in” privatization, and preventing the water take-backs which have occurred in many U.S. cities which were dissatisfied with privatization experiments.

Additional hazards are posed by the proposed terms of the FTAA. The FTAA empowers companies from FTAA member nations to sue governments directly for cash compensation in secret, closed-door trade tribunals operating under the auspices of the United Nations and the World Bank for future lost profit if a city decides to reverse a privatization. Under a similar agreement, a subsidiary of U.S. water company Bechtel is suing the city of Cochabamba, Bolivia for $25 million because the city took back its water system in response to a citizen outcry over rate hikes of 400%.

18

dsquared 02.09.05 at 11:58 am

The article brought to mind the question … would they be in this mess if they hadn’t subsidised the food in the first place?

Probably yes, as they would still have had an overvalued exchange rate (assuming that this was a given). In general, yes, at least part of the book is about the mess that Africa has gotten itself into, but another part of it is about the obligation on anyone handing out policy advice to come up with a way out of the mess that doesn’t involve killing lots more people than it saves.

19

Abiola Lapite 02.09.05 at 1:02 pm

“as they would still have had an overvalued exchange rate (assuming that this was a given)”

But then one has to ask the question why exchange rates are overvalued to begin with. The answer is provided by Peter Griffiths above: because it’s an excellent way to skim off the national income. As he says,

In the past money for subsidies and imports had come from an overvalued exchange rate = a tax on exports. This is an extremely effective way for a kleptocracy to cream off a large chunk of the GNP. There is a hidden subsidy on imports. They allocate import permits to themselves and sell on the black market.

I’ve seen this scam at work first-hand in Nigeria, on a vast scale; set up an official exchange rate that’s grossly out of whack with market realities, do your own importing at the official rate, and then sell the merchandise locally at the black market rate, or even better – cut out the import/export aspect altogether and simply run an arbitrage operation; all it takes to get rich fast is having connections to the right general or minister. These sorts of tricks constitute an excellent argument for dollarization, the better to take all monetary discretion out of the hands of local “leaders.”

20

david 02.09.05 at 1:09 pm

It’s the “they” in the “isn’t this really about the mess they’ve made with subsidies” that always gets you. The book describes the short term mass famine that will result from World Bank free trade policies — a famine likely to devastate rural and urban areas. You get no points for talking about moral hazard when you are about to starve half a million.

Peter Griffiths, if you’re still around, I hope the speaking gigs keep coming! Sorry to hear about the consulting business, but on the upside that does confirm what you say in the book.

Has anybody accused you of unfairly questioning their motives or integrity, I meant to ask less flippantly? I’ve a hobby collecting outraged people defending their honor when confronted by the deficiency of their policies.

21

Abiola Lapite 02.09.05 at 1:35 pm

“The book describes the short term mass famine that will result from World Bank free trade policies — a famine likely to devastate rural and urban areas.”

This is wildly inaccurate. The typical result of a shift to a more open trade regime is that urbanites lose out while the usually far more numerous rural dwellers see an increase in income; it’s because urbanites are more likely to riot that so many Third World regimes are loathe to adopt free trade policies that benefit their agricultural sectors.

22

Matthew2 02.09.05 at 2:07 pm

Like Stiglitz’s book, this looks very balanced and ideology free, very interesting. Thanks for the recommandation!

23

david 02.09.05 at 2:21 pm

Abiola, had you read the book, you would not be saying things like “wildly inaccurate.” You also wouldn’t be exposing yourself as somebody for whom an assumed model takes the place of empirical study.

24

John Isbell 02.09.05 at 2:35 pm

Fair enough, Abiola, but if “lose out” = die, then rioting seems in order.
Another plug for Palast, “The Best Democracy Money Can Buy.” He also doesn’t like Pat Robertson.

25

Jack 02.09.05 at 2:44 pm

Isn’t the article really about moral hazard?

The article is about moral hazard in the same sense that an article about lifeboats might be said to be about moral hazard.

Clearly quite a lot could have been done better in Sierra Leone. What does this have to do with moral hazard? Do we need to let the people starve in order to make sure that they can get proper feedback? Surely the educational value of that would be diminshed by people dying. If moral hazard means something different then it is a little off topic.

26

Abiola Lapite 02.09.05 at 3:01 pm

“You also wouldn’t be exposing yourself as somebody for whom an assumed model takes the place of empirical study.”

Of course, having only spent many years living in the sorts of places Griffiths describes, I must defer to your superior knowledge of this issue …

27

Abiola Lapite 02.09.05 at 3:08 pm

“Fair enough, Abiola, but if “lose out” = die, then rioting seems in order.”

One can see why it is in the self-interest of urbanites to riot, but a policy-maker also has to take account of the many hungry people living in the countryside who don’t have the opportunity to use violence to intimidate their rulers. Most of the starving where there is famine are usually to be found in the rural areas, not in the cities – Ethiopia, North Korea, the Soviet Union in the 1930s, it’s the same story.

28

david 02.09.05 at 3:17 pm

“Sorts of places” does not equal Sierra Leone. That’s precisely the point of Griffiths book. You assume, without having read his argument, that the famine couldn’t affect both areas, because you imagine you know the type. Which is stupid, no matter how many places you’ve lived in. But, not willing to rest on a superior chuckle yourself, you have to toss off snide comments implying superior knowledge. In the movie, maybe you can play the World Bank representative.

29

John Isbell 02.09.05 at 3:20 pm

Then I guess the question would be: was rural famine imminent in Sierra Leone? Urban famine evidently was.

30

dsquared 02.09.05 at 4:10 pm

Basically yes. Lots of rural Sierra Leone was dedicated to growing crops other than rice; the cocoa plantations are “rural”, but you can’t live long on cocoa beans (actually you can if you plant cassava around them; the situation with respect to cassava is a whole nother interesting chapter in the book)

31

Abiola Lapite 02.09.05 at 4:20 pm

“You assume, without having read his argument, that the famine couldn’t affect both areas, because you imagine you know the type. Which is stupid, no matter how many places you’ve lived in.”

You made a general statement about free trade and famine, and I rebutted it by giving examples, so this in no way serves to prove anything other than that the only person here who is being “stupid” is yourself. Free trade policies do not generally lead to famine in both rural and urban areas, and that is the empirical truth.

32

Abiola Lapite 02.09.05 at 4:25 pm

By the way, “David”, it’s mighty presumptious of you to assume that I’ve never been to Sierra Leone, based on my writing “sorts of places”; you don’t know where I have or have not been, and such statements only serve to make you look silly (not that you need help doing so anyway).

33

david 02.09.05 at 4:41 pm

My statement obviously referred to the book that was the subject of the post and subsequent comments. There was nothing general about it. Your comment demonstrated ignorance about the book’s contents, and at the same time a smug superiority that you knew more about the case than the author of the book. (You also did not, as you claim, offer any examples, though Griffiths does, because he wants to show how the potential famine in Sierra Leone is different from other cases.)

To repeat, the point of the book is that those who don’t bother to figure out what is going on in specific cases, but instead bloviate about what “free trade” does in general cases, have the disturbing potential to kill people on a massive scale. You are welcome to read the book and disagree, but you’ll have to know something about the cassava and cocoa production in Sierra Leone at the time to say something about the potential for rural famine there and then.

Christ, you’re an annoying sack, “Abiola.”

34

david 02.09.05 at 4:44 pm

Apologies for the last sentence, I’m off to get more coffee.

35

Walt Pohl 02.09.05 at 4:46 pm

Hey, can we keep it civil? Some threads inevitably descend into ugliness, but there’s no reason this one has to.

36

Tracy 02.09.05 at 5:11 pm

I will have to read the book. Which reminds me how much I miss Wellington library.

Banning imports is hardly proof of the IMF or the World Bank being tools of multi-national companies. If we assume that multi-national companies want to make profits, then the larger the market the better and they’re not too particular about where the money that’s paid comes from. If the World Bank or the IMF were demanding that the Sierra Leone goverment sign a contract to import so many million tons of rice a year at a fixed price in US dollars or Euros that would be rather good evidence of being tools of multi-nationals.

However, I am puzzled as to where the Sierra Leone government was getting the money to buy rice in the past. Manipulated exchange rate or not, and all the accounting fraud you like, real resources had to be going out of the country (either directly or on loan repayments, I am assuming that direct aid grants are a negible part of the economy) otherwise the rice supplies would have dried up as rice growers and shippers realised that they weren’t actually getting paid. Either it was through borrowing or being paid for by some sub-group of the population, Abiola’s description of Nigeria implies that the burden was on exporters.
If you’re an economist who’s concerned about the poor, standard Rogernomics then implies that you remove the subsidies and compensate the poor directly by taxing the wealthy and giving the money to the poor. Who can then buy their own rice, or if they prefer, wheat, taro, potatoes, couscous, etc. (For those of you who know a little about recent NZ political history, there’s good reasons in their respective philosophies why Roger Douglas was a member of the Labour party and Ruth Richardson that of National).

What was deadly and criminal was ignoring the second part of the Rogernomics prescription, or failing to make any other transition plan. But the basic setup of the original scheme sounds like Sierra Leone was either taking on an increasing amount of debt or impoverishing some politically-poor part of the population to subsidise rice. And one doesn’t have to be a free-market ‘fundamentalist’ to see the problems with either situation.

37

Jeremy Osner 02.09.05 at 5:36 pm

Tracy — I have not read the book yet; but I do not get the impression from the excerpt posted above, that Griffiths is defending the status quo as non-problematic; he is saying rather that the WB’s proposed solution made things worse.

38

JRoth 02.09.05 at 6:02 pm

tracy almost asks the fundamental question that I had about artificial exchange rates. If SL (or anyone else) insists on pretending that the leone is worth 10X what it is, that’s all well and good, but what can a Japanese rice producer do with a a mess of leones worth only about 1/10 the rice he used to have? Unlike China, SL can’t manipulate its currency through central bank currency exchange shenanigans, because there’s little real market there. I mean, why buy inflated Leonese (?) cocoa when there’s other exporters with, at the least, less inflated currencies?

What am I missing? Int’l aid can’t possibly fill the gap, so what does?

39

dsquared 02.09.05 at 6:28 pm

but what can a Japanese rice producer do with a a mess of leones worth only about 1/10 the rice he used to have?

Basically, Japanese exporters get paid in yen. The yen is bought with the proceeds of cocoa exports (for which the buyers pay dollars to the govt. owned Leonean marketing corporation) and the person getting the shaft is the domestic cocoa producer, who gets a radically lower number of leones than he deserves for his crop because of the exchange rate. He then stops planting cocoa because he can’t afford fertiliser, which was yet another problem that was hanging around in the background before the WB decided to make things worse.

40

brian littlefair 02.09.05 at 6:55 pm

abb1, re: ‘do it on purpose… Western companies want to make profit, IMF is their tool, ideology is an excuse,’ can’t see it. This commenter is as cynical as the next guy
( http://print.google.com/print/doc?articleid=8rZ7lNaize9 ), but
any reasonable market-entry study would look hard at incomes and LT growth. Famine does not maximize profit. p oneill’s point about ‘mantras’ resonates more. Aides memoire and other development bank writeups can stick to boilerplate with remarkable rigidity.

41

brian littlefair 02.09.05 at 6:57 pm

abb1, re: ‘do it on purpose… Western companies want to make profit, IMF is their tool, ideology is an excuse,’ can’t see it. This commenter is as cynical as the next guy
( http://print.google.com/print/doc?articleid=8rZ7lNaize9 ), but
any reasonable market-entry study would look hard at incomes and LT growth. Famine does not maximize profit. p oneill’s point about ‘mantras’ resonates more. Aides memoire and other development bank writeups can stick to boilerplate with remarkable rigidity.

42

chris bond 02.09.05 at 7:41 pm

The point is quite simple: under a unfree market, capital, labor and expectations can be distributed in a manner quite unsuited for a free market. Abruptly imposing a free market regime on such a situation causes severe dislocations; in poor countries severe dislocations can equal millions of deaths from starvation.

While free markets may create much more wealth, the inability of some people to see that the transition needs to be carefully considered is pathetic. Perhaps it occurs so often in part because much of economic theory is placed in equilibrium terms, and students are insufficiently exposed to the dynamics involved in reaching those equilibria.

43

abb1 02.09.05 at 7:47 pm

Famine does not maximize profit.

True, famine does not maximize profit, but famine might be only a side effect. What does maximize profit is exercising full control over a country by destroying its economy and making it dependent on IMF, WB, USAID, etc. I have no idea if SL does fit into this template or not.

Also, while I have to admit that ‘Western capitalism is the source of all evil’ is an attractive theory of everything in the universe, I do realize that in reality things probably are a bit more complicated. However, this theory will probably work OKay for the first rough guess of what’s going on.

44

brian littlefair 02.09.05 at 8:20 pm

My favorite first rough cut: Power Disparities are the root of all evil. In market economies, in command economies. Find ’em and shake ’em up as much as you can before you get purged, that’s the ticket. Peter Griffiths seems to have it down pat — what a guy.

45

Darren 02.09.05 at 8:57 pm

D^2 “as they would still have had an overvalued exchange rate”

so, the article points out the evils of fiat currency, currency controls, currency manipulation, etc …

Abiola “But then one has to ask the question why exchange rates are overvalued to begin with.”

so, the article points out the evils of fiat currency, currency controls etc …

Jack “The article is about moral hazard in the same sense that an article about lifeboats might be said to be about moral hazard.”

Or, the way that side-impact bars and other safety features have the effect of encouraging drivers to drive in a more dangerous manner.

Jack “Do we need to let the people starve in order to make sure that they can get proper feedback?”

One would hope that the risk that you may starve would stop you from starving. Take away the risk and the self-responsibility is also taken away. Incredibly cruel.

46

Tracy 02.09.05 at 9:31 pm

Abb1,

Destroying a country’s economy does not maximise profits for most industries. Rich people can buy more. Given that hunger outweighs all the advertising in the world, what do you think Microsoft or GM would prefer a country to be full of? People who need to spend 50% of their income on food to keep their stomachs full, or people who only need to spend 10% of it?

The exception is those natural resources that can be extracted with only limited skills needed from the people living in the country and then sold to rich people. This is why we hear about ‘conflict diamonds’ and not ‘conflict PS2 games’. You still need the rich people somewhere though to actually get profits. And even those industries seem to have no objection to working in Australia or Norway, indicating they find quite adequate profits despite well-fed, educated and politically active populations. After all, the locals can afford to buy diamonds.

47

abb1 02.09.05 at 10:08 pm

Tracy, this is from amazon.com review of Perkins’ book I mentioned above:

Perkins writes that his economic projections cooked the books Enron-style to convince foreign governments to accept billions of dollars of loans from the World Bank and other institutions to build dams, airports, electric grids, and other infrastructure he knew they couldn’t afford. The loans were given on condition that construction and engineering contracts went to U.S. companies. Often, the money would simply be transferred from one bank account in Washington, D.C., to another one in New York or San Francisco. The deals were smoothed over with bribes for foreign officials, but it was the taxpayers in the foreign countries who had to pay back the loans. When their governments couldn’t do so, as was often the case, the U.S. or its henchmen at the World Bank or International Monetary Fund would step in and essentially place the country in trusteeship, dictating everything from its spending budget to security agreements and even its United Nations votes. It was, Perkins writes, a clever way for the U.S. to expand its “empire” at the expense of Third World citizens. While at times he seems a little overly focused on conspiracies, perhaps that’s not surprising considering the life he’s led.

That’s what I was referring to.

48

WillieStyle 02.09.05 at 10:18 pm

Jack “Do we need to let the people starve in order to make sure that they can get proper feedback?”

One would hope that the risk that you may starve would stop you from starving. Take away the risk and the self-responsibility is also taken away. Incredibly cruel.

It seems to me that the set of people who would have influence over decision making in Sierra Leone doesn’t overlap very well with the set of people who are at risk of starving in a famine.

I suppose you might mean that the typical SL citizen develop an understanding of macro-economics that would drive him to violent revolution at the sight of a fiat currency; but that does not strike me as very realistic.

49

john s 02.10.05 at 12:04 am

And there I was thinking dsquared was a fan of the WB:

http://www.crookedtimber.org/archives/001869.html

Maybe the people who work there are just human; sometimes they get it right and sometimes they don’t.

50

brian littlefair 02.10.05 at 1:23 am

‘ to build dams, airports, electric grids, and other infrastructure’

fortunately, the heyday of development-bank infrastructure financing is behind us, and the OECD fought with some success against tied aid. graft is actually hard under ICB procurement rules, even in a bent place, because your competitors watch for it like hawks. Getting a bidder disallowed is lots better than beating her on price.

It’s not so bad now, unless you’re Iraq.

51

Canadian 02.10.05 at 2:52 am

The citizen of SL will be well served if they elect enlightened politicians, get rid of corrupt politicians and greedy businessmen, not fight civil wars, and ignore bad advice from the WB and IMF.

52

Darren 02.10.05 at 9:14 am

williestyle “I suppose you might mean that the typical SL citizen develop an understanding of macro-economics that would drive him to violent revolution at the sight of a fiat currency; but that does not strike me as very realistic.”

particularly “but that does not strike me as very realistic.”

I don’t disagree but the mechanism of theft and corruption shouldn’t be ignored. The mechanism is also at work in more affluent countries but because these countries aren’t close to the edge of starvation it is ignored (even encouraged if it means stock bubbles/housing bubbles).

53

P.M.Lawrence 02.10.05 at 1:15 pm

Here are a couple of things I remember from my time in Nigeria.

Import permits were brought in under a regulation that insisted they be printed on standard government paper. Only, there was none of the paper in the country. They couldn’t get any in legally without an import permit, so they had to smuggle the first lot in.

The USA made its economic weight felt even then (late ’60s), by diverting the local prawn catch through US factory ships. Prawn availablity and quality dropped dramatically, even as prices increased, since everything had to be channelled through so many links in a value chain. And this was typical.

Of corruption there, it was my experience that it wasn’t precisely what we would feel that way. That is, it wasn’t an ethically wrong thing but rather an inappropriate response of old values in a changing world. It showed up as “dash”, which I eventually realised had a great many analogues to the Roman institution of patron and client. All this gave me some insight into the Yoruba in particular, though I wouldn’t claim as much as a specialist. Rather, I am like someone who knows enough law to know when he needs a lawyer.

54

Jack 02.10.05 at 1:38 pm

Darren,

Are you saying that it would be more cruel to deny the people of Sierra Leone the right to starve as a result of their own actions than to let them starve?

Presumably their own risky action is insufficiently vigorous resistance to the introduction of a fiat currency and the peril it was their duty to avoid was being at the hands of the World Bank.

If that is not your point, what is?

It is, I suppose, possible that fiat currencies facilitated the crisis experienced by the people of Sierra Leone although I think the blood diamond trade gives the lie to that argument. But even so I don’t really see what that has to do with the subject of the post.

Maybe I’m being oversensitive but to concentrate on an ill defined moral hazard when people might be starving seems monstrous to me. I think you would be more convincing if you were clearer about who ran the moral hazard, what is appropriate behaviour towards the victims of a crisis (Tsunami victims for example) and the suitability of the role of Grim Reaper for the World Bank.

I note that Mr. Griffiths himself used the phrase kleptocrat. I don’t think there is any condoning of the status quo going on here, it is just that the specific focus was on the lethal effects of myopia and dogma at the World Bank.

55

Darren 02.10.05 at 4:01 pm

Jack

I’m not talking about ignoring the starving in order to “concentrate on an ill defined moral hazard”. Yes, that would be monstrous and obviously so.

I am asking about what happened earlier in the time line. I am asking how the population got to the position they were in and whether or not mistakes were made that could’ve been avoided and even exacerbated the current situation.

“I think you would be more convincing” but I’m not trying to convince anyone of anything. Surely, it is up to those who are advocating policy of one form or another to present convincing argument?

56

Peter Griffiths 02.10.05 at 9:23 pm

I think it is important not to dichotomise. In a complex situation like this – a whole sector of the economy – it is seldom either or, rather “and another thing.”

Sierra Leone went from being the richest country in the new Commonwealth to the poorest in the world, from kleptocracy, bad advice from abroad and bad decisions. Agriculture and mining were taxed to a standstill by explicit taxes and an overvalued currency, while the overvalued currency’s cheap imports hammered industry.

Everybody saw how bad things were. Everybody had their own utopia – what they would like to see. Possibly a welfare state, Thatcherism or Maoism. The problem is not designing a utopia, or even a situation where fewer children starve, rather getting from here to there without too many deaths. An achievable sub-optimal situation is better than an unachievable utopia. E.g. free markets may or may not be an ideal end situation, but introducing free markets instantly does not lead to that ideal end solution. At the beginning, I was obsessed with the problem Abiola Lapite spells out: increasing rural incomes means more children die in the city, so there are riots near the president’s palace. As it happens, a different problem suddenly became more urgent, but his problem still would have to be tackled before there could be any change.

Moral Hazard
In the short article I presented it as a simple problem, my career or a famine, a problem which does not take a moment’s thought, but the book examines it more carefully. Why, for example, did I find myself facing a problem most economists never come near? I assume that an economist’s task is the allocation of scarce resources. My scarcest resource is my own time. I allocate it to maximize the payoff. So I am always where the big players want or do not want change. I would be a lot more popular, and less effective, if I stuck to my terms of reference.

The moral problems are nasty. E.g. deciding to move money from the city to the country means that hundreds of thousands of children will die in the city, certainly. I hope that over the next decade or so rather more lives will be saved in the country. I have no meaningful statistics. I have not done a real economic analysis. I rely on my judgement. The fact that I have somehow got in this position means that I am the right person to make the decision. I am really important, really wonderful, aren’t I? And while I tell myself that I am not the best person to play God, I don’t really believe what I say. And the same is true of World Bank staff, people working in international organizations and donor organizations.

I end with a shocking statement. The overwhelming majority of the World Bank staff members I meet in the Third World are nice chaps. They are truly concerned with the welfare of the people in the Third World and in promoting economic development. They are intelligent. They are left wing by American standards. In the book, I have tried to explore how an organization composed of such people can be so malign.

But, as Stalin said, “One death is a tragedy: a million deaths is just a statistic.” And the Third World doesn’t keep statistics of deaths.

57

praktike 02.10.05 at 9:35 pm

I haven’t read this book, but I do recommend Robert Klitgaard’s. My understanding, in any case, is that the World Bank doesn’t favor structural adjustment any more.

58

dsquared 02.11.05 at 2:04 am

This far down on the comments thread is probably a safe place to reveal my favourite passage in the whole book, upon which I am going to base a whole post sometime soon; it’s the point at which Peter thinks to himself about the nature of a consultant’s presentations (from memory as my copy of the book is in the room with the baby)

“I am acutely aware of the number of times I have said something of this kind; if you carry out this reform then the likely near term effect will be that 200,000 children will die in the city. However, I believe that in the long term, because of the effect of the pricing mechanism, 400,000 farmers’ children who would otherwise have died will live. I do not have any conclusive evidence for this conclusion. The process by which I arrived at this estimate would certainly not pass the peer review process of any Western economics journal. Nevertheless I strongly advise you to take this course of action”.

59

Tracy 02.11.05 at 2:09 am

abb1,

What do you think multi-national companies get out of driving a country into the hands of the IMF/World Bank? If they are doing it to further the political interests of the US government it implies a remarkable level of what we might call public-spiritedness (not necessarily nice public spiritedness) for a company that I would expect to be primarily responsible to its owners.

Sierra Leone, with a population of 6 million people, according to the CIA World Factbook had about $350 million in government spending in 2000. According to the same source the NZ government, with a population of 4 million, spent $30 billion in 2003. Even taking a lot more opportunities for corruption in poor countries, rich countries have a lot more resources available. The NZ government can spend more on roads than Sierra Leone can spend entirely in a year. And, having worked for the NZ government, I can assure you that multi-national firms spend a fair amount of time trying to sell things to it.

On the whole, I would not expect any profit-maximising company to have any serious intent for a country to be richer or poorer, since the free-rider problem is too large and the time-periods involved too long. But if they did, going for richer makes much more sense.

And, as for inflated cost-benefit projections, that also happens all the time in government. Read some evaluation studies done on government programmes sometime to see the sorts of gaps you get between the original claims and actual achievements. The incentives driving people to exaggerate benefits in the hope of persuading the government to do something are far more basic and common than those you suggest.

60

abb1 02.11.05 at 12:52 pm

Tracy,
If they are doing it to further the political interests of the US government it implies a remarkable level of what we might call public-spiritedness (not necessarily nice public spiritedness) for a company that I would expect to be primarily responsible to its owners.

You’re right, and this is why he is criticized as ‘overly focused on conspiracies’ in that review I quoted. However, the obvious response to this is that the the IMF and the US government are simply arms of The Big Business. To a degree, of course. For example, I don’t think you can deny that the US government often acted as an arm of the United Fruit in Central America in the 20th century, right? IOW, by advancing political interests of the US government they advance their own financial interests, it’s the same thing.

As far as government spending and what’s better rich or poor – government spending is not the only game. There’s also control over natural resources and access to cheap labor.

Another thing with NZ and other developed countries is that there’s much less corruption there and much more real competition, so it’s probably a lot of risk and not much profit. You don’t become a billionaire in an Adam-Smith-style environment where a lot of entrepreneurs are fighting for their vanishing share of the market. You become a billionaire in a crony capitalism environment.

So, as I said before, I do agree that there are many different dynamics in this, and I think the ‘economic hit men’ phenomenon is probably one of them.

61

AdamSmithee 02.11.05 at 2:26 pm

To go back to a point made further up the comment chain, they key lines appear to be “people could not buy enough to live on at the subsidized price, so it could be argued that removing the present 25% subsidy would push prices beyond the means of half the population. But the reality was much worse than this. Over the last year, the leone’s value had collapsed against the dollar to a tenth of its previous level. “

I’d imagine it would be almost impossible to keep subsidies high enough (over 90 percent of the world price of rice) that the local price of imported rice would stay the same. The temtation to smuggle the stuff across the border, the cost to a cash-strapped government, and so on. So, presumably, the price went up at some point. When it did, did hundreds of thousands starve? Indeed, I notice from the government statistics below that the consumer price of foodstuffs went up 24 percent over the last year in Sierra Leone. Was there mass starvation?

It has to be the case that sudden price shocks in basic staples should be avoided everywhere, but especially in very poor countries. Having said that, (1) 90 percent plus subsidies on imported foods aren’t sustainable and destroy any incentives for locals to produce crops (think how much we all complain that EU subsidies are bad for LDC farmers) and (2) Griffiths needs to temper his claims for saving the world, they aren’t terribly plausible.

http://www.daco-sl.org/encyclopedia2004/ 5_gov/5_4/Statistics%20Sierra%20Leone/SSL_cpi.pdf

62

Uncle Kvetch 02.11.05 at 2:50 pm

if you carry out this reform then the likely near term effect will be that 200,000 children will die in the city. However, I believe that in the long term, because of the effect of the pricing mechanism, 400,000 farmers’ children who would otherwise have died will live. I do not have any conclusive evidence for this conclusion.

Hey, if that kind of thinking can justify a unilateral war (after the fact, of course), is there anything it can’t justify?

63

Peter Griffiths 02.12.05 at 4:44 pm

As I have said I was working towards an improved system which would do away with subsidies and imports, when some free market nutter came up with the view that if the price went up tenfold, local farmers would produce more food instantly (without having to plant it, let it grow, harvest it, and distribute it), and that local consumers would have no difficulty in paying ten times the price. Result, I had to concentrate on the very short term aim of stopping a famine, and ignore the long term. No I do not claim to have saved the world, just to have stopped one famine, leaving the general situation no better than it was before.

I do not know that SL ever managed to achieve the reform, and certainly its long civil war grew out of the situation I described. So I do not know to the nearest couple of million how many died specificially out of the various attempts at reform. But die they did. At 50% toddler mortality there would have been more than one death for every adult alive today. Shall we say 4 million over the last 20 years? And AdamSmithee asks about the odd 200000! Given how births and deaths statistics are collected in a LDC, the statistical error is far higher than this.

But they had the decency not to die in front of a TV camera, so we can ignore them.

Comments on this entry are closed.