Friday, February 5, 2010

Speaking of Scarcity...

Bill Easterly has a blog post today titled "Who gets the Last Seat on the Plane? Why Aid Hates Economics." He's right again. But his argument could be extended. For example, there is another scarce resource not mentioned in this post whose allocation matters for development: The talent of development economists, like Easterly.

Take, for example the Aid Watch blog itself, whose motto is "Just asking that aid benefit the poor."

Now (bear with me for a moment here!) let's say you're back in the historical paradise of planning, namely the Soviet Union. Everyday, you have to eat the same old cr&p food...

You're sick of it, but you can't find a way out.

Then one day, a leader arrives, with a banner that reads "Just asking that the food not suck!" You cheer! You hoist your comrade on your shoulders! At last, you are fighting back against the system. The battle for better cafeteria food is on!!

But what is the opportunity that is missed here? What is the thing you really need, that you're not going to get from the "Just asking that aid benefit the"--I mean, the "Just asking that the food not suck" campaign?

What you're not getting, and what you really need, is some new restaurants!! Yes, that would be just the thing. Some options. You would like another place to go to eat.

There is a general rule here: What really drives change isn't protest, but genuine competition driven by consumer choice. (Back to dining for a moment: Think about food in airports twenty-five years ago, if you were alive then. All Sodexo monopoly. Uniformly terrible and expensive. Now, with entry and competition for licenses, the food in the airport is at least as good as what you get outside the airport.)

Entry (or threat of entry) doesn't have to be by entrepreneurs in order for it to induce beneficial change. In the U.S., the most significant new entrant in the aid business in the last decade has been the Department of Defense. At his big event at Brookings last month, Easterly ridiculed the assertion by Secretary of State Clinton that the DoD's mission could be aligned with development, saying:
Her big think point was that we can merge defense, diplomacy, and development. And that’s probably one of the worst ideas I’ve heard in my career as a development economist.
Well, what does he think is more likely to stir USAID from its longstanding torpor: (a) the Aid Watch blog, or (b) the threat of being rendered obsolete by the Pentagon? I'd put my money on (b).

So instead of "just asking that aid benefit the poor," how about just asking for some new restaurants?


  1. Nicely done. Lowering the barriers to entry into the "aid" business, and introducing competition might be just the thing. I think, though, to extend the economic metaphor of the boring/bad food in the cafeteria, one must back up one more step.

    There is a reason there aren't any more restaurants, and that is partly because there is only one customer: the State. (or the airport in the other scenario.) To get out of the situation, the State and the Airport both needed to look to enlightened self-interest and see that ceding some control would lead to a better outcome for them (more revenue) and to their customers (greater satisfaction.)

    It will take more than the introduction of DoD as a competitor to USAID to change the game. It will take a new look at who the customer is and what they really want.

  2. Surely the Gates foundation is a new restaurant?