[Book Review] From Aid to Trade: Lessons Learned from Haiti

Haiti is a country that has been almost “NGO’d” to death. In their new book, From Aid to Trade, Daniel Jean-Louis and Jacqueline Klamer (full disclosure: two former colleagues of mine) highlight this issue in a clear and meaningful way. They make the case that even with this vast abundance of NGOs, Haiti as a nation has not seen very much of an improvement in the last several decades.

The book begins with a vivid story of Laurent Auguste, owner of a local soap manufacturing company in Port-au-Prince, Haiti. After the cholera outbreak in 2010, bars of soap were being donated and distributed for free in Haiti by everyone from the United Nations to small churches across the United States. According to Daniel and Jackie, these donations effectively pushed Laurant and his soap company out of business.

This is just one anecdotal example of perhaps thousands of stories demonstrating the misallocation of good intentions in Haiti. More recently, in early March 2016 The New York Times Magazine ran a story highlighting a group of older Christian missionaries who volunteered their time in the hills above Port-au-Prince by “struggling with heavy shovels to stir a pile of cement and sand.”

They were there to build a school alongside a Methodist church. Muscular Haitian masons stood by watching, perplexed and a bit amused at the sight of men and women who had come all the way from the United States to do a mundane construction job… Imagine how many classrooms might have been built if they had donated that money rather than spending it to fly down themselves. Perhaps those Haitian masons could have found weeks of employment with a decent wage. Instead, at least for several days, they were out of a job.

One of the key lessons of these stories is that poverty alleviation and economic development always requires more than good intentions.

I, myself, learned this lesson while volunteering with a student organization in college. Our group was affiliated with an organization that facilitated trips for business and economics students to travel to Panama (and other countries) in order to perform microenterprise consulting and financial literacy training. I went on two trips, each a week long, in back to back summers. During the first trip, we worked with a microfinance institution (MFI) in a rural village. Through that MFI our group provided funds for the village to build a roadside stand to sell their hand-made crafts and souvenirs. Returning a year later, the materials that had been purchased with these funds were sitting—unused—in a pile on the side of the road.

This is a crucial lesson for anyone who possess the persistent desire to help the less fortunate, the oppressed, the poor, or the marginalized around the world. If you are new to the field of international development then this may be a worthwhile book for you. The stories told by Daniel and Jackie introduce the complexity of our world and exposes this inconvenient reality: that good intentions are necessary but not sufficient in our world.

If, however, you are more experienced in the field of international development, then continue reading because even this complexity is complicated. My remaining thoughts can be separated under two headings: ‘economies not economics’ and ‘war aid, what is it good for?’.

Economies not Economics

(Some may catch this as one of the key points of Morten Jerven’s book Africa: Why Economists Get it Wrong. It’s important, so I’ll expound on it a bit.)

In From Aid to Trade, Daniel and Jackie develop and present a strategy of economic development, what they call, opportunity-based economic development (OBED). This strategy is defined as the following (pp. 66):

As a comprehensive strategy, OBED means harnessing assets and capital through entrepreneurial opportunities to increase balanced transactions, a key activity to implement OBED, thereby meeting needs profitably and generating resources. It means that needs should be met through market-based opportunities and initiatives, not through projects or programs that do not generate profit.

To me, this sounds a lot like the so-called “Washington Consensus” policies of the late 1970s and 1980s. Here’s a brief summary of the goals of these policies: The term “Washington Consensus” denotes the ambitious agenda that considered developing nations as no different than economics 101 textbook cases of free-market economies. Basically, the agenda reflected an urge to “unshackle” these economies from the “restraints” of government regulation and in return institute “market-based” policies that “stabilized”, “privatized”, and “liberalized.”

Looking back on the outcomes of these policies, it’s not very controversial to state that they “didn’t work” – by that I mean they didn’t deliver the expected outcomes. Why? Well, in short, because policymakers, at the time, were studying economics and not economies. They treated the diversity of the developing world as being characterized by oversimplified stylized facts often found in an economics 101 textbook.

Never mind that the critical assumptions of a free and efficient market as presented in economics 101 (i.e. individuals maximizing self-interest, secure property rights, full information, no monopoly power, access to a complete set of markets) fail to hold in many, if not all, of the local economies of developing nations. Never mind the institutional underpinnings of market-oriented economics. Never mind that the very institutions that allow market-oriented policies to “work” – by that I mean create flourishing societies – in developed countries took decades, or perhaps even centuries, to form and mature. Never mind the intricacies of local contexts, of local history, of local culture that effect how people make decisions and behave. Never mind political interests that may make certain policies more urgent or feasible in a given country.

There is little doubt – or at least I’m not arguing – about the goal of developing countries to become self-sufficient, industrialized, market-oriented countries. I just want to suggest that achieving this goal is tricky. It’s context specific. There is no universal recipe. And the solutions almost certainly lie beyond the realm of economics 101 textbooks. I would have loved more specific details, from Daniel and Jackie, on when and where the OBED strategy works best and a discussion of the limitations of OBED as a strategy for the development of economies.

War Aid, What is it Good For?

The title of the book is catchy, and I’d say a bit jarring. Both words, “aid” and “trade” carry a lot of baggage and are difficult to wrap one’s head around. The idea of moving “from aid to trade” sounds nice on the surface. But what do we actually mean?

As I’ve written about before, painting “aid” as a singular thing uses a brush that is a bit too wide. Aid takes many different forms. There is humanitarian aid. Food aid. Aid for education. Aid for health. Aid for infrastructure. Aid for energy. Aid for the environment. Aid for security. Aid for political stabilization. Aid for economic reform. Aid for data collection. Aid for policy analysis. And on and on and on. Do all of these “not work”? Should all of these be replaced by trade? I’m not sure if that’s even possible, let alone desirable.

Next, lets relax the assumption that aid is altruistic. Instead lets allow ourselves to live in a world where countries give aid for purposes of their own benefit. In this case, countries like the United States give foreign aid primarily for self-interested purposes – i.e. for reasons explained by public choice theory. As much as I dislike this reality, I’d argue this is the world we live in.

If the reality is that the primary reason for countries like the United States giving foreign aid is for self-interested reasons, then it’s no wonder that lots and lots of foreign aid funded programs haven’t delivered growth or development. Additionally, if this characterization of foreign aid spending is true, then the bulk of the effort from those of us who actually do have so-called altruistic intentions should be to figure out how aid can be used most effectively. In a sense, we should move away from the “aid vs. trade” characterization and think more carefully about aid plus trade.

Now, this “aid plus trade” characterization is (I think) actually what Daniel and Jackie’s book is all about. So don’t let the title discourage you, From Aid to Trade is a book that (thankfully) moves us beyond the tired “aid debate” and is more about how aid can facilitate trade. This much is alluded to in the subtitle: “How Aid Organizations, Businesses, and Governments Can Work Together”. But remember, these are lessons learned from Haiti. Be careful when applying them to different economies.