Tag Archives: Washington Consensus

The Problem with the Development Aid Debate

A fascinating debate has been taking place over at the Huffington Post over the past several days. At issue is Dambisa Moyo’s new book, Dead Aid, in which Moyo argues that aid undermines developmental efforts in recipient countries. Africa therefore needs to go “cold turkey” off foreign aid in order to achieve economic development. Moyo is, in short, advocating the ultimate in free market economics. Moyo’s controversial thesis has been widely popular in some circles, even breaking into mainstream television coverage on the Colbert Report.

Jeffrey Sachs offered a counterpoint to Moyo’s position, arguing that foreign aid is necessary to address the contemporary challenges faced by the African continent. A number of other bloggers, including Kristi York Wooten, Jake Whitney, and Alex Coutinho have also chimed in to the debate to support Sach’s critique of Moyo.

But the problem in the debate so far has, as Kevin Watkins points out, been oversimplified. Watkins critiques Moyo for “tilting at windmills.” “The real debate,” he argues, “should be over how to increase aid effectiveness.” Watkins is right. But he doesn’t go far enough in his critique. To the contrary, in his defense of Moyo, William Easterly criticizes Sachs for providing too many caveats to his theory. According to Easterly,

A good rule for all theories, including theories of global poverty, is Occam’s Razor — make the theory as simple as possible, but no simpler. Another way to put it is beware of explanations with too many Ifs, Buts and Excepts in them.

But Easterly’s concerns are only valid insofar as the goal is to provide a universal theory of economic development. If the goal is rather to achieve development in a specific country, that the greater the specificity the better. In this respect, the debate over whether foreign aid facilitates or undermines development has been that it offers a single, unified vision of what constitutes development. We don’t seem to have learned from the failure of the Washington Consensus (glossary) to achieve development in Africa through its “one size fits all” policy prescriptions.

Rethinking IMF Policy

Dani Rodrick posted an interesting note on changes to IMF policy on Africa. Since 1980, the International Monetary Fund has promoted a policy of strict fiscal discipline, cutting state expenditures, liberalizing exchange rates, and privatizing the economy. The policy prescriptions have been labeled the “Washington Consensus,” which acts as the policy basis for structural adjustment programs required for countries experiencing balance of payments problems. But the consensus was often (and perhaps incorrectly) criticized for offering insufficient attention to the broader social context within which the economy functions. Elsewhere, Roderick advanced the notion of an “augmented” Washington Consensus, which incorporates social safety nets, poverty reduction, and anti-corruption as key elements of the consensus.

But in his blog this week, Roderick notes that the IMF “now thinks there is a role for increasing fiscal deficits even in some of the world’s poorest countries.” In countries not currently suffering from excessive debt burdens, targeted fiscal stimulus packages, focusing on expanding spending on infrastructure and social safety nets, may now be warranted. This sort of Keynesian policy has been at the heart of the U.S. response to its ongoing economic crisis. Now it appears the majority of African countries may be encouraged to follow a similar path.

You can read the entire IMF report here.