American Enterprise Institute

March 18, 2008

[Edited transcript from audio tapes]

8:45 a.m.	Registration and Breakfast
9:00	Panelists:	Deepak Lal, University of California, Los Angeles Sarath Rajapatirana, AEI David Devlin-Foltz, Aspen Institute
	Moderator:	Mauro De Lorenzo, AEI
10:00	Adjournment

Proceedings:

Mauro de Lorenzo [Moderator]:  Morning, folks.  Thank you for coming.  Welcome to AEI.  I am Mauro de Lorenzo.  I am a resident fellow here at the institute.  The title of our event today is “What was the Marshall Plan?”  And we are going to run this a bit like a power seminar, like a power lunch.  We are going to end promptly at ten so that people can get on with their day but, hopefully, also take something with them. 

Anytime a politician or an activist wants to spend a lot of money to solve any impossibly difficult problem they will inevitably call for a Marshall Plan for this or a Marshall Plan for that, and it has become really the most potent metaphor we have for the efficacy of foreign aid in particular.  The Marshall Plan itself was a U.S. effort signed into law 60 years ago next month by President Truman to stabilize Europe after World War II.  The main political aim you could say was to halt the events of Communism in Europe but the strategy adopted to do so was to increase commerce, investment, trade, growth, principally by tying European economies more firmly to the U.S. economy and more firmly to each other through free trade.  And the Marshall Plan was really the heart of that strategy. 

The levels of funding involved were, indeed, immense for the time, something rising to almost $13 billion by the end of the program in 1951, which exceeded one percent of GDP, almost, at that time.  So you get above this crucial magic U.N. figure of 0.7 percent, which enhances the salience of the metaphor for some of today’s debates.

And the plan was a success.  Appeal of Communism in Western Europe waned.  During that period the European economies perked up again, leading to the almost miraculous performance of the ‘50s and ‘60s.  It might actually be more accurate to say that the Marshall Plan coincided with success; there is still significant debate about whether it caused it or was one of the causes.  But coinciding with success is more than can be said for some of the large-scale aid programs which followed it.  And so I think it is, even so, a relevant consideration and something in its favor.

But, anyway, the only two facts you ever hear about today concerning the Marshall Plan is that it involved a lot of money and it succeeded; you hear very little about what it actually was, why it succeeded, or at least why it failed to cause some of the damage that subsequent aid programs have sometimes caused.  And the conclusion drawn is that massive aid transfers of the style we are used to are the correct solution for solving similar problems in Africa, Asia and parts of Latin America.

I am going to leave the details to our able presenters.  Let me just remark briefly that the plan contained two features, which have, fortunately, come back into vogue.  First, the idea of local ownership; the national plans that made up the Marshall Plan were designed and implemented by the European governments themselves, which is surely an element in their success.  And second, the centrality of economic growth in the private sector and the development strategy that was adopted in the plan.  The Millennium Challenge Corporation, which requires countries to design their own compacts and which demands calculated economic rates of return on the projects, is in this sense a return to first principles, to some of the earliest principles, in foreign aid.

The idea that the U.S. can only cause damage by spending money abroad, whether we label it as spending aid or something different, like public investment, is increasingly untenable in my view, something we need to move beyond.  And sort of to the extent we can draw lessons from the Marshall Plan and similar efforts, the sooner we can hopefully move beyond the massive-aid or no-aid dichotomy and debate that have characterized this discussion over the past few years and focus instead on getting some of the effects and the mechanisms right.

With that, I want to turn to our panelists, starting with Sarath Rajapatirana, a visiting fellow here at AEI.  He had a career at the World Bank where he was responsible, amongst other things, for the World Development Report on Trade and Industry.  He is a specialist both of Latin America and of Sri Lanka and began his career, in fact, in the Central Bank of Sri Lanka.  Sarath, I’ll let you start and then we will hear from Deepak Lal.  I’ll introduce each as we go.  Thanks.

Sarath Rajapatirana:  Okay, Mauro.  I am going to use this PowerPoint just as a visual prompt but I am not going to cover the points, as you can see.  Mostly it is an aid for myself and sometimes with my perfect Sri Lankan accent I need this type of help.  As Mauro said, there is a lot of ideas and noise behind the Marshall Plan, and everybody being -- from Gordon Brown, the former chancellor of the exchequer and now the prime minister of Britain; Kofi Annan, our friend Jeff Sachs have been great enthusiasts for a Marshall Plan for Africa, and we want to inquire what it meant.

And we felt that it is really worth it because mostly it is associated with giving large amounts of money, and maybe that is a motivation.  And I also noticed that the international financial institutions that have very good staff are remarkably silent about this application of this model.  They have not come out and said it is not a very good idea, so it is very interesting that way.
So that is why they say now the success of the Marshall Plan in what sense we can discuss later and why not apply to Sub-Saharan Africa, which has the most challenging development problems of our time.  In fact, economists should be tested on their ability to analyze the situation in Africa and to come out with some solutions.  And so what we do is that we compare the two models, two approaches, if you like - the Marshall Plan and aid to Sub-Saharan Africa.

Now, the first thing that strikes you is that reconstruction is an easier thing, much easier thing, than development.  Development is a very complicated story and we know for the last 60 years there are much more failures compared to success in development.  But reconstruction is relatively easy.  Institutions are there; the skills are there; people have done this before.  And we are talking about Western Europe, maybe next to the United States the most advanced set of countries in the world.  And so it worked in that sense because all the conditions that could bring it success that [sounds like] we are looking for were there.

And also in articulating this program, which is officially called the Economic Recovery Program, the people who fashioned it allowed it great flexibility; it was time-bound.  “We are going to be there for four to five years;” that was Secretary Marshall’s famous speech at Harvard convention in 1947.  And it allowed the private sector to play a larger role than analysts now [sounds like] being prepared to give in the last so many years.  And we run into people -- a couple of papers where it was very well-intentioned to do it that way; it did not happen by accident.  And remember that at that time, there was a lot of enthusiasm of planning; Communist Russia was seen as a model and France and Italy were about to have election where a Communist party would have made some strong gains.  So that is the context in which the Marshall Plan was introduced.

And we say it is a success because by numbers, by looking at the numbers, a lot of people say it is not so much that GDP growth that we look but other things it did, as Mauro mentioned.  It created the right political ambience for laying down the basis for Europe’s growth in the last 60 years and it kept away bad economics and bad politics from coming into Europe.
Interestingly, because of the type of destruction that took place in the Second World War - strategic bombing at certain station heads and crucial buildings - it was easier to reconstruct because, funnily enough, for the type of damage that was done compared to World War I.  So that is why in 60 years, for example, Europe had a per capita GDP growth of 10 percent above 1938.  And they also made use of the time to create some new institutions that were -- in order to increase trade among themselves and commerce among themselves is very important factor; the European Payment Union and the European Coal and Steel Community that later became the EC and the European Union.  And, you know, other big test is democracy and peace prevailed in Europe ever since.
And so when you look at reasons for success, as we’ve said before, construction, limited goal, simplicity, flexibility -- the Harvard speech by Secretary Marshall was only some three and a half pages.  Today you would have a 300-page document of giving aid to a country. 
Free market reforms that allowed better allocation of resources and actually adoption of new techniques because the war had postponed the adoption of new technology.  A lot of people, a lot of farmers and industrial, mechanical people, engineers came under Marshall Plan.  The U.S. looked at the factories and learned new ways of doing agriculture, industry, both.
Now, the contrast in main features of aid to Africa is that it is in many [indiscernible] economic dimension.  Economic development itself is very difficult.  But to make it worse, aid programs have gone into various areas; what we call mission creep.  So on the one hand we know it is a very difficult nut to crack; on the other hand it gives us -- and people who work in these institutions have become very ambitious in order to address not only economic development, other social development, and sometimes there is [sounds like] a culture at parts of the World Bank in the mid-2000s. 
And it is sort of premised on -- and Deepak might -- much better to address this about how a concept of poverty traps take off into a self-sustaining [sounds like] road, big pushes and not really tested-out things.  It turns out later when we actually -- when we look at development the last 60 years, this cannot be supported.  There is no great empirical basis for them.
And they did not support free market economics, actually.  It began in the 1980s, an idea with structural adjustment loans, but they became very unpopular.  And basically it was in the mid-1990s in the World Bank; it was basically abandoned and now I think it is still the same case.  And this is not owned by Africans; it is sort of donors running the program, the supply-demand most of the time.
And again, numbers speak to the case of Sub-Saharan Africa, you know.  The per capita income in majority of the countries is below 1960 corrected flow of price changes and things.  And because the numbers -- I doubt 40 percent of that population illiterate; tremendous scourge of AIDS and malaria, and 50 percent of the people live below US$1 a day.  And one of the other problems that much of the infrastructure institutions that this country has inherited were either neglected, suspended and abandoned, and Deepak is really looking to this in one of his books.
Then the independent institutions that had certain semblance of good economics replaced by marketing boards, nationalization of the main functions, main assets of the private sector in many countries, and return to authoritarian and predatory [sounds like] regimes within 10 years of independence.  Actually, it turns out that only four countries in the world that have maintained some semblance of democracy in the developing world - India, Jamaica, Costa Rica and Sri Lanka.  In the case of Sri Lanka, which I can speak to, some people in parts of the north and east may not agree with that characterization at the moment.
And the reason for failure is, again, pretty obvious:  High, ambitious aid programs that went beyond just raising per capita income but lost in various other requirements to, again, environment, things that are needed to be done but [indiscernible] or very wide terms of reference for these people who worked on these countries.
And as we said, based on rigid unproven concept -- for example, one of the big concept at that time was foreign exchange gaps with that -- so, therefore, aid was there to fill up on each [sounds like] gap.  But over the course of foreign aid, exchange gap was created by governments, by bad policy.  If you tax exports or if you restrict movement of capital, then obviously, you are going to see a gap. 
So by supporting these gaps, then you are actually worsening the situation than improving it.  And especially in Sub-Saharan Africa - not the only place, though - huge numbers of civil wars in the 1980s to 2004, resource cross [sounds like] it sort of brings people out of the woodwork that want to put their hand into the national till and corruption.
In the handout, one of the handouts on DPU that Deepak and I did, we have a couple of tables that we want to posit [sounds like] them here.  And there is no moment of free markets, and donors supported the rigid and restrictive policies; that much is very clear.  And clear to the bureaucracy that also help perpetuating is quite remarkable.  I think what I discovered is one of the most interesting features of the Marshall Plan was that there was no bureaucracy created.  Actually, the Republican Congress at the time was very skeptical about the State Department taking this over, and they created -- got the [indiscernible] to run the program. 
Paul Hoffman was an executive from Studebaker and other one, Will Clayton -- these people are from the private sector and many academics who became well-known were also helping with the Marshall Plan at that time.  And so there was no self-perpetuating bureaucracy that only responds to its own incentives.  That did not happen with the Marshall Plan.  I think that is a very important point.
Recently, the good news is that there has been recovery in Sub-Saharan Africa, about five percent growth.  Of course, Zimbabwe is the tremendous exception that we can see a country imploding on its own, on its terrible government.  But this growth is mostly due to commodity recovery and we are not sure that this is a change in the permanent rate of growth impact because we have seen in the past these commodity booms come and go.  And sometimes, like the case in Nigeria, make people worse off than they were before.  And again, Deepak can address that issue.
And then they have created new institutions but it was really encouraged by the U.K. on the Africa report.  The New African Partnership for Development and African [indiscernible] they are good efforts but they don’t have this sort of the -- will the Marshall Plan approach do free market, the more regional of asking donors not to come and tell us to open our markets too soon; you know, this type of thinking.  And many of these countries now, two-thirds of these countries have held multi-party elections.  Well, that has somehow not gone too well, as you know, in the case of Kenya.  This is the sort of graph for what we have for recent GDP growth and aid.  You will notice that aid is -- ODA is become like 20 percent of -- high percentage of GDP [indiscernible] percent of GDP.  And mostly it goes to governments; it increases the size of the government.
And for the lessons for the future - and again, I leave most of that to Deepak to address - as I see it, one of the misreading in the Marshall Plan’s arguments is to say it was not so much the money that did it but the other things like the policy that it encouraged, the creation of institutions that were the basis for future growth, the political economy of it.  [Indiscernible] that by creating aid growth within certain limits, regenerating surplus of that could be invested.  The amount of money that they contemplate after the G8 meeting in Gleneagles in 2005, we think it is very excess of US$625 billion for the next 10 years.  That might leave them worse off in the future than even now.
I think that both donors and Sub-Saharan African governments might be modest about what aid could achieve.  That would be a good lesson.  And my personal view - that donor countries should not be bashful about supporting freedom and democracy in these countries because then the government begin to respond to what real people want, and I think that’s a very important element.  And most of the aid institutions have bent backwards not to get involved in the past, and I think it was a mistake.  Thank you.
Mauro De Lorenzo:  Thank you, Sarath.  If you could push that button it will prevent feedback from the system.  And we will move now to Professor Deepak Lal, professor of International Development Studies at UCLA; also, professor emeritus from University College, London.  He has been a very well-known participant in these debates for a long time, has taught in other universities and worked for many well-known organizations.  But I’ll let him get quickly to his remarks.  Thank you for joining us.
Deepak Lal:  Thank you very much.  I thought the best way to deal with this is to begin with how it began.  The Marshall Plan [inaudible] being used as an argument in support of aid is a rhetorical device because in a way when you start -- and yes, my white hairs will testify, I have seen these movies play themselves again and again now and this is just a replay.  And I’ll put my following remarks in this context.
So in a sense now, the best way of looking at foreign aid -- and in fact, debates in this time [sounds like] are really a reflection of ongoing debates in the U.S., from policy debates, domestic debates.  And in a sense, these are now being played out and not just in the U.S., also in the U.K.  These are then played out in the Third World.  Now, the sad thing for Africa is whereas much of Asia and even Latin America is much more resilient to playing out these proxy debates and battles, intellectual and otherwise, in the West, Africa unfortunately still continues to do that. 
And that is why whenever any Western politician has to show either strength, the party or charity whatever [sounds like] you do, you pick up some old movie in which you had some way of showing this by engaging with Africa.  You are just seeing a rerun of this.  So the Marshall Plan is just that.
Now, to put this into context I think the best way to describe this is my engagement with Africa and how I have come to see things as I do.  I started life as a [indiscernible] in Oxford.  In the late ‘60s, I moved to London and one of the first research projects was going to be financed by the U.K. They keep changing its name; it is now called the Overseas Development Agency, but that was the ministry like USAID.  And they financed a project in which they wanted me to go and look at foreign investment.  I think there were three countries - Kenya, Tanzania and India.  Anyway, so that was my first time; I went off. 
The Indian High Commissioner in the U.K. was a personal friend, and he had been a personal friend of Kenyatta and Beauttah, so I had introductions to all these people and I met all these people.  Anyway, the amazing thing was -- I mean that -- and it is a fantastic part of the world, East Africa.  Those of you who have traveled there -- and once you have been there, you actually fall in love with it.  And this is the time when, in fact, those old institutions left by the British were still in place.  I went to Makerere University; the chair that I hold is named after James S. Coleman who -- he was an academic at UCLA and he went to spend many, many years building up Makerere University and that had some of the best academics [indiscernible] U.S., et cetera.
In Nairobi, there was the Institute of Development Studies which, again, was a first-rate academic institute.  Joe Stiglitz, all these people who worked in Africa, all we know about it, all level of migrations, was all done there in those early ‘60s.  Tanzania, by contrast, was already under the clout of Nyerere’s -- what did he call it?  African social -- Ojama [sounds like] in African, all these fancy terms.  Anyway, so that was the desert. 
That finished [indiscernible] I got to know -- I mean Kibaki was finance minister then, so I had an introduction; we got quite friendly.  He also introduced me to his top civil servants, Harris Mule, who is finance minister, Philip Ndegwa, the governor of central bank.  So all these marvelous [sounds like].
Now, why this is important is that in, I think, the mid-‘60s you remember there was all this stuff; there was a huge debate here about distribution and development.  The argument was that you cannot develop without actually equalizing things.  And, of course, Robert McNamara, who had switched the World Bank, which as early as [indiscernible] a reconstruction instrument, trying to overcome a market failure that because of the 1930’s defaults, money from the West or developed countries were not flowing to the poor countries.  The World Bank was intermediating there. 
He then decided, partly again -- so this is all reflections; this is just looking at the middle ground.  He was trying to overcome the guilt he felt about the Vietnam War.  So how do you do it?  You go out and support people who you think are not doing good.  And his great love was Nyerere.
Anyway, in these 1960s he was pressurizing Kenya, which was doing quite well, incidentally.  I mean, things were being stolen but it was an efficient -- he did not try to destroy the previous institutions, and Kenya was doing very well; it was growing.  But [indiscernible] well, Banklot [phonetic] was saying, “Oh, no.  But it is not competitive there.  Compared to Tanzania, this is all rubbish, you see.”  I mean, Nyerere has gone out.  He is a Socialist; he redistributed the land and all this.  And what he really want to do is to see how has poverty changed in Kenya as a result of this very market-friendly laissez-faire approach.
So he told the Kenyan government they must finance his study of poverty in Kenya.  By that time, if you remember, my friend Harris Mule -- they had to do something.  And they knew me and so they said, “Look, we get Lal and he can choose anyone.  He has a young colleague at Oxford called Paul Collier.”  So we went off and we had this [indiscernible] wandered all over the country and we wrote this book - yes, I hope it is still in print - called Labour and Poverty in Kenya.
Okay, now, during this period, of course, this is now -- we are now in the late ‘70s; ’77, ’78.  Of course, all my friends at Makerere had been murdered, fed to the crocodiles or what have you.  The idea was being systematically destroyed, particularly once Kenyatta went in, Moi came to power.  And by the time we finished this - this was in the late ‘70s - I had never been back to Kenya because I just could not bear the thought of these institutions which were being created which had helped enormously to give Kenya the stability, economic prosperity being destroyed.
Okay, next stage:  In the early 1980s, Chidzera [phonetic] who I knew from the UNCTAD had become finance minister when Mugabe became [indiscernible].  I met Mugabe once, and Chidzera [indiscernible] is lying.  He said, “After all this inward-looking thing under Ian Smith, we are aching now to liberalize.  Will you come and tell us what we should do?”  So I sat there; I went there, spent a week or two.  And [indiscernible] “Why do you not go and have a word with Robert?” as he called him [indiscernible] I will try and I am going to see Robert.  Two minutes, [indiscernible] to me, this was us.  He has this hair coming out of the other [indiscernible], so I said that is just a waste of time and I stopped.
Then in the late mid-‘80s, late-‘80s, I was running the research [indiscernible] of the World Bank.  And at that time, because we did destroy it, all these institutions, particularly intellectual institutions - Makerere University, IDS - all these indigenous local African intellectual palace [sounds like] which was -- they had gone.  So we tried to set up -- I have forgotten what it was called; they keep changing these names.  But it was something in which you would try to put some little seed money to get African researchers to help on Africa and stay in Africa.
Now, this has been quite successful according to my friend, Paul, who has spent some time here.  But that -- you see, there you are; you have got a [indiscernible] institution.  Well, then - I must finish - then when Mandela was released a lot of us in England in those days -- universities had been adopting - I suppose, the best word - lots of black South African students.  We had taken them in because they would not get into any decent universities, and Wits in Johannesburg was our main sort of conduit.
So when Mandela was released, or just before it became clear that he was going to be released, they organized this sort of thank-you conference. So I arrived in -- I think this must have been in -- this is actually in Cape Town; that conference was in Cape Town.  And Mandela, one week after he had been released -- and we had this incredible conference.  So one day I was sitting in a table next to Mandela; the next was with De Klerk.  And at that time, the sense [indiscernible] and I have been going back to South Africa on and on.  And I must admit until about two, three years ago, I thought this was now the best big hope. 
Kenya, of course, you know, I told you that after Moi I had no hope for Kenya, so I am not surprised what happened in Kenya now. 
But South Africa still seemed to me the best hope.  And that sparked as in [sounds like] Mandela’s influence.  I mean, I remember asking -- I said, “If I were you and someone had taken 30 years of my life, I would not be suppering with Magella [phonetic].”  And he just laughed; he said, “No, it is not as bad as that.”  And he gave me a whole set of reasons, the last one of which [audio glitch] me.  He said, “Of course, I knew I would always win.”  So [indiscernible] this fanatical thing and complete forgiveness for his enemies.  I mean [inaudible].  So he has kept a lid, if you would like, on all these tendencies to destroy the institutions that exist in Africa.
Now today, up until now, I thought it is 50-50.  I think now the odds have become a little bit closer to what happened in Zimbabwe.  And I say that because Mbeki has been very sensible.  I mean, you can argue about, you know, nuances of policy but by and large he has run the thing fairly efficiently and South Africa is doing well.  I’m not at all convinced that his successor, who is in the populist big man in an African political mode [sounds like] is going to sort of keep this up.  So there we are.  I have gone down the right African continent, and very soon [indiscernible] pushed down to the Antarctic with the penguins.  So that is my story of Africa. 
Now, what does it tell us?  It tells us a number of things.  First - and Sarath emphasizes - the Marshall Plan was devised and was making use of institutions which had been developed, which, in fact, were the institutions of capitalism.  This is where it all arose.  And they did not have to invent these Genova [phonetic].  They knew about the rule of law.  They knew about how running an administrative system was.  All this was there.  And they had -- pre [sounds like] the war they had representative institutions to get some of the political order. 
Now Africa was in the process of having that.  And I described it when they had these intellectual institutions.  They had some civil services left behind, certainly in East Africa when I was there.  And they were systematically destroyed. 
Then you ask yourself why.  Well, in the ‘80s I wrote a paper about the predatory state.  And that really is the source of the problem of much of Africa, but not all of it.  Botswana also has natural resources but Botswana by contrast is one of the best performing countries in the Third World.  The reason why and my answer for whatever it is worth is the following:  You see, I really do believe strongly that countries have a political culture which goes back a long, long way and you cannot create institutions which go against them. 
Now one of the worst things, which happened to Africa in the period of colonialism, is not all these exploitations; they are rubbish.  The main thing is that they destroyed indigenous African political traditions, okay?  And what are these based on?  They were based on the tribal chief. 
Now think about Mandela.  Why has Mandela been so successful and why am I so terrified that when he goes the whole thing will fall apart?  Mandela is also [sounds like] a chief.  He is also a chief.  No matter what you say, he acts like he is also a chief.  Now that was true of Seretse Khama in Botswana and the only reason why that was allowed as it were to go independent and continues to keep its political institutions were the Brits.  So there is nothing there.  It is just a desert, Kalahari Desert, a lot of Stone-Age people.  And they say, “Why the hell should we disturb this?”  It is only later on that the diamonds were found.  That is why it has continued. 
Now, they have got the trappings of democracy and all these other stuff; that is not point.  But the spirit of the polity is still as if it was a tribal chief to where [sounds like] in fact everyone has looked after.  You are not actually behaving in a predatory way.  That is not the way tribal chiefs behave. 
Now, in an odd way the creation of these nation-states and handing over to a very thin educated elite, which, in fact, came to look upon Africans very much like the white colonialists did.  When you talk to Mugabe about his African citizens, his attitude is no different from some of the West; I mean, King Leopold in the Congo, he looks upon them as savages who he wants to clean up.  I mean he has actually said this when he is cleaning the slums:  “All this dirt has to be taken away.”  So they have the same attitude. 
At the same time, given their natural resources - the rents which you get from this - there is a tremendous temptation to take this as quickly as you can while there is more because there is no stable political order and you have a very short time horizon.  You will [indiscernible] take them out but you have to take them as quickly as possible.  So instead of spending all this money on development, et cetera, as Botswana has done, because of this uncertainty the fact that the rulers know that their time is short -- they will rob the place.  And this has been happening again and again. 
Now, in this context, to say that anything like the Marshall Plan is something which is even vaguely appropriate, forget about anything else; it just boggles the mind.  All you are doing is you are giving money to these chaps.  So where would it end up?  Like Abacha [phonetic] taking Viagra and a whole host of women in his bed.  What else?  Other treasures going off and buying huge sums of [indiscernible] being spent on buying property in England, Switzerland, and Florida.  So this is a complete waste of money. 
So what is going on here?  What is going on here it seems to me is that today when you look at foreign aid, most people realize [indiscernible] but nevertheless there is a political lobby, partly self-interested.  Some people here, which includes me, we are all -- I call them lords of poverty.  We led a very good life living off this poverty industry, particularly in Africa.  And that continues.  But there is a general belief amongst the general populace this is worth doing.  And that is very like a cheap [sounds like] way of assuaging guilt. 
I’ll end by just showing you what I mean.  I live in L.A.  We live in Westwood, very close to the university.  The other night we were going out for dinner; we came back.  And now, Westwood has got all these drug addicts lying around, homeless, et cetera.  I normally do not but I saw this pitiless chap so I just gave him a dollar.  And I did not take him to the nearest food store to say, “Will you please buy some nourishing food?”  I knew he was going to go buy drugs and drink but I gave it to him.  Why?  Because it made me feel better. 
And that is why foreign aid programs will continue in the West for two reasons.  Firstly, because you can play all your intellectual debates and battles on this battlefield and that, unfortunately, is Africa; try all your favorite panaceas.  And secondly, because it is an easy way to assuage guilt and the sums involved are [sounds like] the bigger sum of things are [sounds like] small.  So it is an issue which will create passion but, really, in the bigger [indiscernible] it is not worth it.  My advice to Africans now is to just turn your back on them and say, “You go home and fight there.  We will take care of ourselves.”  Thank you.
Mauro De Lorenzo:  Well, let us see if we can turn to -- on a more optimistic note.  David Devlin-Foltz, who is director of the Global Interdependence Initiative at the Aspen Institute, where he looks in particular - amongst many other things - at public perceptions of foreign aid and U.S. global engagement.  Thanks for joining us.
David Devlin-Foltz:  Thank you.  I promise only tempered optimism.  I spend a lot of time, as Mauro suggested, looking at public opinion concerning developing countries, development assistance, Africa in particular.  And a famous pollster famously remarked, “Most people do not think about most things most of the time.”  And in my work, I spend a lot of time thinking about things that most people - my cousin Donna in Indiana, for example - do not think about most of the time.  And I do not blame her.  Why should she? 
But her perceptions of Africa, shaped as they are by television, are pretty gruesome.  In fact, they follow pretty closely to what Doctor Lal just laid out; it is a place of chaos and kleptocrats and innocent victims.  It is a little bit like Bear Stearns, actually, over the weekend.  But never mind. 
Whenever we talk about whether foreign aid works in Africa or elsewhere, we should immediately clarify the question “Works to do what and for whom?”  I think we heard some legitimate questions being raised about the intentions of aid over time.  It is also helpful to disaggregate Africa a little bit, as Doctor Lal was just doing in his remarks. 
There is a great image I used to show my high school students.  It is -- you will have to imagine this because I did not bring a visual aid.  Imagine an outline of the continent of Africa with the outline of the continental United States, which fits neatly within the Sahara Desert, just sort of the upper third of the continent.  And as one of my students remarked, “Geez, Africa is a big country.” 
Well, yes.  Big, diverse, complex, with very different political traditions and cultural traditions and norms within countries and across countries.  Because although I do not want to slip into the sort of fashionable, liberal critique of the colonial regimes, it is a fact that many of those boundaries divide peoples who would otherwise have been fairly coherent in their political and social traditions. 
It is also true that some of those boundaries encompass people who are perfectly, or nearly perfectly, uniform in their political, economic, religious, spiritual traditions, and some of those peoples still, in fact, do get into trouble.  But that said, it is a fact that these traditions are and were divided by really quite artificial boundaries.  So that is tricky.
I think it is also useful to disaggregate aid itself.  I believe that we could do more and it might be useful in whatever time remains for discussion to disaggregate a little bit aid and its intentions as it has been carried out in Sub-Saharan Africa over these many decades.  And then in that light I think it is useful to remember that the goals of aid have been extremely mixed.  They include maintaining or strengthening geostrategic alliances during the Cold War and as is more common these days, in fact, in light of the 24-hour news cycle, aid is much more likely these days to be intended to alleviate immediate famine, drought, disease, and civil war - the very things that my cousin Donna perceives as typical of Africa. 
To the extent that the actual goal of much aid during the Cold War period was to maintain our “friends and allies” like Mobutu Sese Seko in Zaire in power, to the extent that that was the goal aid was quite successful; it helped him stay in power for lo those many decades.  And I should say I was a Peace Corps volunteer in Rwanda from ’79 to ’81; did my training in Bukavu in the summer of 1979.  At that point Mobutu had been in power for, I guess, 14 years.  And we said to ourselves, we Americans, “How do the Zairians put up with this bastard?”  I mean, how long could this guy possibly stay in power before he will be kicked out?  It was 1979 and he was kicked out when?  Ninety-four, finally?  Ninety-seven.  So there you go. 
And he did that partly -- Mobutu stayed in power partly by cleverly balancing the geostrategic aims of Belgium and France and the United States and, to a certain extent when it suited him, the Soviet Union.  So we were successful in keeping that particular ally partly in power. 
In other instances when aid has been a response to drought, famine and -- and I should add, therefore, it is not surprising that aid given for that purpose of propping up the likes of Mobutu is not associated with strong economic performance.  So some of the aggregate performance indicators that we see when we lump all of African aid together and all of African economic growth together not surprisingly is dragged down somewhat over time by the fact that much of that aid had geostrategic purposes. 
When aid had the purpose of responding to immediate famine, drought, disaster, et cetera, once again, it is not likely to be associated with a period of economic growth.  Emergency aid to coastal businesses in Mississippi following Katrina probably arrived during a period when those businesses were not doing terribly well.  That does not mean we should stop helping businesses after disasters. 
Steve Radelet of the Center for Global Development in his Primer on Foreign Aid published in July 2006 as a working paper for the Center for Global Development and, perhaps, more thoroughly in his paper published in 2004 with Michael Clemens and Rikhil Bhavnani -- they underscore that all aid is not created equal.  The 2004 paper, Counting Chickens When They Hatch looks at the time period during which one might expect aid to have some legitimate economic returns and concludes, inter alia, that “aid that is intended to build productive sectors such as agriculture and industry, which accounts for only about 53 percent for all aid flows -- now this is worldwide, not Sub-Saharan Africa in particular -- but aid that is intended to build up productive sectors has a positive rate of return.” 
And that rate is probably two to three times larger than the rate of return we find when just looking at aggregate aid in general.  So I would just call on my colleagues to disaggregate a little bit more carefully, as they are obviously capable of doing, among African countries in particular and among types of aid in particular before drawing very -- what are frankly fairly grosso modo conclusions about the impact of aid in Africa.
That said, I’m not here to defend the truly terrible aid decisions that have been made over time, nor the truly terrible decisions that have been made by many recipient countries over time.  But I do think that having set up a conversation about, well, what was the Marshall Plan; why did it work as well as it did in postwar Europe; what lessons can we draw from it for Sub-Saharan Africa, that is an interesting question and I think worth exploring.
Fortunately, others far more qualified than I have explored that question, including R. Glenn Hubbard, a member of this very institution’s Council of Economic Advisers, and Bill Duggan, a former Ford Foundation representative for West Africa and an associate professor at Columbia Business School.  Their op-ed in the Financial Times, which many of you may have read at the time in June 2007, says, in fact, aid to Africa does not resemble the Marshall Plan as we have, I think, fairly easily concluded here. 
But then they go on to say Africa does, indeed, need a Marshall Plan and they feature many of the elements that my colleagues have spoken about:  A business-centered approach, one that is country focused, country driven, responding to actual needs as articulated by those countries themselves, one that is competitive among countries just as the Marshall Plan was to create incentives for better planning and, ultimately, for better results.  And they point out that the original Marshall Plan - this is again Duggan and Hubbard - started out with only 14 percent of the U.S. public in support.  The tide for action was turned by an aggressive information campaign by U.S. business leaders, in this case, the Committee for Economic Development. 
By contrast, business leaders have been conspicuously absent from the growing debate on African poverty.  I would actually disagree; there is a growing movement among business leaders in the United States, spearheaded by organizations like the Initiative for Global Development and Business for Diplomatic Action that actually, I think, can help rally public opinion.  And this is where I come back to the stuff that I work on, the polls that I look at, the things that my cousin Donna does not think about every day. 
There are opportunities, I think, to build support for –- there are always opportunities in this country to build support for authentic, effective development assistance in whatever form that takes.  There is a real hunger to do that and I do not want to belittle in any sense the desire that my cousin Donna and others have to do right, to do something good, to do something that will alleviate the very real poverty that is there and that she perceives.  I think there are opportunities for, to use a shorthand, business-led -- effective, business-led development assistance that we can and should support.  That is it.
 Mauro De Lorenzo:  Many thanks.  We have a few minutes for discussion.  I’m going to open with my own question and then before they answer, take two more, so that we get a bunch and people can talk.  It is a remark and a question. 
So you have, in a sense, these two parallel stories, which never actually come together that I can see.  So there is the story about how the Marshall Plan was different than subsequent aid programs, and that is why it was not a failure.  And then, you have this well-known argument about why previous forms of aid did not work.  The fact that aid as practiced in the 1960s and ‘70s did not work as intended is not an argument against spending money today in a better way. 
You actually end up with this pretty undesirable conclusion based on what in my view are pretty dubious anthropological and historical arguments about Africa’s [indiscernible] capacity to develop in any way; end up saying that the Marshall Plan worked because it was Europe, and not it did not work because of the policies.  I mean, there is a sort of contradiction in the argument, at least in the presentations. 
What I would like to challenge you to do is to actually talk about the features of them that were good and how they can inform or be of some use in the way we are spending money abroad today.  Because falling back on saying “Stop all aid,” and somehow a miracle will occur is, I think, increasingly untenable as a policy prescription.  Are there two other remarks?  Gentlemen here and –- there is a gentleman right there and then the ambassador here.
 Male Voice:  Thank you.  One of the things that disturbed me about dealing with multilateral environmental treaties is this thing called capacity building.  When I first heard that term, I did not know what it meant and it sounded really good.  And what I found out was it is to create a bureaucracy in the recipient country so that the people in this country or in Europe who are the aid bureaucrats will have people just like them to talk to. 
This seems to me -- we are rich enough to support a rather large and inefficient bureaucracy but most of these countries are now, it seems to me, suffering under the extremely unfortunate creation of these bureaucracies in very poor countries.  I would just like to invite a comment on that.
 Kailash Ruhee:  My name is Kailash Ruhee.  I’m the ambassador of Mauritius, which, incidentally, is a very robust democracy.  And we have managed to craft a very small partnership between the public sector and the private sector, which in my view has [audio glitch] success of Mauritius. 
I would like to ask a question to Professor Lal with respect to Tanzania.  I think we need to focus more on the success stories in Africa and try to draw some lessons from there instead of looking at the much broader picture, which is a picture of doom and gloom.  One of the legacies of President Nyerere in my view is that he has managed to maintain the social integrity of Tanzania.  I think one can attribute the relative success of Tanzania today to the fact that Tanzania has been a fairly stable society, notwithstanding the fact that the policy of Nyerere has been an economic disaster.  But I think the social stability that he left behind can explain to a fairly great extent -- and also the fact that policy decisions to encourage the private sector. 
We are talking about a country which in 1992, ’93 did not have a private sector worthy of the name.  We can say the same thing about Mozambique; we can say the same thing about Madagascar, which is coming up well.  And I would like to get your views about how a country like Rwanda, which went through what they went through in 1994, getting their act together and proving a lot of pundits wrong as to its future.  Thank you.
 Female Voice:  Thank you, [indiscernible].  I would like you to address the issue of this notion that because the United States gives political aid to countries for a political motivation, as though that aid is any different from anyone else.  And I lived in Zaire and have three cousins in Indianapolis as well.  And I think they are kind of right on foreign aid, to tell you the truth; they have a distrust of it;  they think it is going into a big black hole, and think that the American public and foreign opinion has been generally pretty correct on foreign aid. 
But the point that I want you to address is, first of all, as though Mobutu was any different than Idi Amin or Kenyatta in terms of corruption or bad practices is always amazing to me, having lived and served in Africa.  But, overall, our foreign aid that comes out of our political -- our economic support fund is less than a third of the dollars of foreign aid.  It goes for exactly the same projects that go to other reforming countries; there is only a small amount that goes into cash grants. 
And when you compare that aid on the basis of economic freedom, the Doing Business report, the Freedom House index, the countries that receive the “politically motivated aid” are actually no different than the other countries.  So this notion –- and everybody always pulls up Mobutu as though, therefore, you know, all of our aid is political and that is why it has not worked is really not founded in fact.  So I would like you to address that and I just did a piece on that and would like you to answer some of those queries.
 Mauro De Lorenzo:  David, why do not you start?  We will run down and conclude.
 David Devlin-Foltz:  Yes.  Let me be clear.  I mean, I spoke about –- I do not know about everybody; I spoke about Mobutu because having lived and traveled in the country myself, it is particularly striking.  I do not believe I claimed that all aid is political or that all political aid is bad but I did ask us to differentiate among the types of aid and its intentions when making overall claims about the effectiveness of aid in producing economic growth.  When aid is truly intended to produce economic growth and is well-targeted to productive sectors, it actually has a pretty good rate of return.  That is the key argument here.  When it is not, it does not.
 Deepak Lal:  I absolutely agree that the [indiscernible] cannot be aggregated.  In fact, I gave you some instances of countries which did extremely well.  Mauritius is another prime example.  It belongs to Africa but I mean it behaves as Botswana, like a Southeast Asian tiger. 
What you have to ask yourself is the following question:  Despite the governors [sounds like], they have gone off the board, receiving the largest amount of foreign aid, any part of the world, any basis you like, why has it made no difference?  And then you think of the places where, in fact, there has been huge, massive poverty - India, China, [indiscernible] with foreign aid.  So foreign aid, just looking at it, is a completely -- how do I put it?  It is a development, really, in all this context.  So to make a big hoo-ha of this makes no sense. 
And like you are saying, it keeps coming back to the fact this is part of what happens with domestic politics and foreign policy here.  And that is a completely separate thing.  If you are already interested in Africa, this has, in fact, got nothing to do with development there.  In fact, we have many [sounds like] instances where it actually harms rather than helps development. 
I now want to take up this question of Tanzania.  Now, that is an extremely interesting case.  You are absolutely right.  But you know what?  Tanzania has had what you call social security in Kenya, which I worked on for many times a dozen [sounds like].  My friend Paul Collier has also has been working on all the [indiscernible] determinants of civil strife and civil wars and what it leads a country to do this.  There are some striking findings to this.  Actually, when you think about it, it is pretty obvious.  The countries most at risk were the countries least at risk [sounds like] are either in which you got completely one tribe, homogenous in some sense; they are pretty close.  Or there is perfect competition amongst tribes. 
Now, Tanzania is a country with perfect competition amongst tribes, so we would expect social stability.  The worst in some sense, in this coming -- bearing itself out, you have got few tribes, Kikuyu and Luo.  I mean this something which we wrote about in our book in, God knows, 1972.  And we predicted there that at some stage the great thing about Kenyatta was he mediated this in the sense of the word.  Moi did in the big man, bragging [sounds like] predatory manner.  And Kibaki, unfortunately, much to my regret, has gone back to Kikuyu dominance.  So there you have this thing in stripes. 
You are absolutely right.  You have got to look at these countries.  I have.  But the there are some general lessons.  It is not each country is sui generis in some sense but there are some general lessons, particularly if you compare huge parts of the world, Asia or Latin America.
 Sarath Rajapatirana:  I’ll answer right on to Mauro’s question.  Actually, the Marshall Plan did not succeed because it was in Europe but because it was -- it had all these characteristics that we discussed.  Before reconstruction, everything was there.  They had a limited focus.  They did not create a bureaucracy that perpetuates itself.  And so that is why power [sounds like] breaks down for Africa.  That is not because they are Europeans, because they are the right condition. 
So when you talk about development aid, we are talking about different animals; it is much more difficult, much more challenging; it goes into culture, institutions.  And let us be humble about it.  We do not really understand many of the things, how they work.  Let us be modest about it.  Let us do a little experiment for how things work, but not to have grand plans to this thing. 
The second point is about Tanzania.  I will not risk to answer the question of Ambassador Ruhee.  Is it the price you want to pay to have 20 years of stagnation, to have social stability, you know?  Is that the price?  Because many people do bad policies with some excuse, saying they are going to bring national unity and they failed.  In the case of -- I think Tanzania failed miserably on the economic sector, not necessarily to have gone through 20 years of low growth and falling per capita income. 
On the question of capacity building, I am as perplexed as you are.  I really do not know the answer to it.
 Deepak Lal:  Can I make more comments?  One is there has been a turnaround in Africa, which included Uganda; it is now [inaudible] to argue about it.  Ghana, which I know has really gone down the tubes; Zambia, which is, again -- now in each of these cases, foreign aid is not part of the story because human beings and societies have a process of learning.  They have seen the disasters.  I have many of these students.  They come and some of them have gone back, and they have taken charge of it.  And that is the answer. 
India and China did not turn around because, you know, [indiscernible] aid or this side or the other.  There was internal dynamic often linked to a crisis.  We said we cannot keep doing things in the same way.  And you have to let that process work itself out. 
In fact, giving aid can short-circuit it.  And I would just say in that sense I think aid now provides all the wrong incentives for all the reformers sitting in Africa.  It is an indigenous thing.  Africa of Africans and let them decide their policies themselves and we should just keep open borders for capital, trade, and then let them do it.  And they can.
Mauro De Lorenzo:  There are a lot more to say, but we have run out of time.  I want to thank you all for coming, and thank our panelists very much as well. 

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