Sunday, March 24, 2002

Remora

William Easterly. As in, who is William Easterly?

Right now, Easterly is on the screen as the World Bank economist who came in from the cold. He's written a book that points out (for those who haven't seen it) that the World Bank has failed to stave off poverty in the third world. He's being touted in conservative circles as the man who wants to cut aid, and make those third world slacker nations pay their debts on time. His article in Foreign Policy, which supposedly got him in dutch with his bosses (along with the book that came out of it, The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics) is about the second of those two concerns. In it, he makes three of claims:
1. That debt relief is already happening, and in fact has been inscribed in the world system since the early eighties.
2. That the refusal of a nation that has a legitimate "democratic" government to pay back debts incurred by previous military or corrupt governments is a perverse incentive, insofar as the money loaned, at the same time, to "good governments" must be paid back. In effect, we are rewarding bad behavior.
3. That making debt relief conditional on a nation's having a democratic government, or the beginnings of a civil society, creates incentives to make the World Bank and the international lender entities more, rather than less, intrusive in the internal affairs of third world countries.

Now about these claims. Readers know that LI loves nothing better than setting up claims, like ninepins, and bowling them over. Arguing in the oxygen tent -- we take up all the air, you get the fun result.

But seriously, folks. All three of the claims are actually valid only insofar as debt relief is viewed from one side only: that is, from the side of the debtors. Take point 2. To claim that debt relief will send a perverse incentive, insofar as it will tip the parity between the debts of good nations and of 'bad" nations to the side of bad nations, is to ignore the disincentive sent to lender agencies if, in fact, the debts of military dictatorships and the like are voided. The perverse incentives in place, pace Easterly, have really been the other way: given the lack of discussion, or the lack of the organs necessary for discussion, in a military dictatorship, in fact lending agencies have a perverse incentive to loan to these nations. They can better negotiate terms with juntas than with democratically elected governments, and they can better envision the objectives of those loans -- say some unnecessary dam -- rather than the other type of loans -- a medical infrastructure, say. Meanwhile, there is, as we all know, an immense system of kickbacks in place, a system Easterly doesn't even touch on. Take Nigeria. We know that the loans that went to the rebarbative Abacha government. Here's a press release from, of all places, the American embassy to Nigeria:


"Jack A. Blum, an attorney who specializes in controlling bank fraud, government corruption and money laundering, said May 25 that "solving" Nigeria's long-term debt and corruption problem "will take a lot more than conferences on civil society and how to make people more honest."

To solve the problem, he told the Subcommittee on Domestic and International Monetary Policy in the U.S. House of Representatives, "You have to bring criminal justice and recovery of money into play. That is absolutely essential." That, he said, means "getting at the proceeds of corruption, going after the billions (thousands of millions of dollars) that (Former Nigerian Head of State, General Sani) Abacha took and the billions more that prior governments looted from the country."

Blum, who was called to testify on the Nigerian debt and corruption situation, said "Many of those people (who took those public funds) are sitting in London as some of the wealthiest people in England. Those assets cannot be overlooked.... Four billion (four thousand million dollars) with Abacha, $40 billion ($40,000 million) at least since independence," with some estimates running as high as $90 billion."

As a matter of fact, LI has talked to Jack Blum about this issue. We did a piece on money laundering for a magazine, the Globalist, which went funny on us and never paid for the piece. Blum's point is that the experience of Nigeria has been repeated over and over again. It isn't just that a place like Nigeria doesn't have infrastructural projects supposedly justifying the loans that were earmarked for them -- it is that the lending agencies knew, even as they were making the loans, that a significant portion of the money was being kicked back to the West, in the form of transfers to Western banks.

This is an area Easterly, supposedly the boldest and the baddest economist ever to walk away from the World Bank, doesn't even discuss.

Since his book was published eight months ago, one might wonder why he is being profiled, now, in the press. The reason is, he is dear to the Bush administration's heart, endorsing their position on foreign aid. Here are two grafs from his profile in the Washington Post:

"From 1988 to 2001, he was senior adviser to the World Bank's Development Research Group, the in-house brain trust charged with gauging the success or failure of the bank's development efforts around the world. In the process, he's trekked through slums from Karachi to Cairo and wears the good-humored but weary resignation of a lifetime idealist mugged at last by reality.

"He rejects the notion that he's any kind of whistle-blower. He still believes in both the World Bank ("there are a lot of really smart, really committed people there") and aid to developing nations, which he would like to see increased from the current level of $56 billion. In fact, foreign aid has been declining in recent years after peaking at $64 billion in 1991. Although private capital has taken up some of that slack, Wolfensohn has been calling for a $10 billion increase from the bank's member countries in each of the next five years."

Get the "mugged by reality line" -- was it William Krystal who said a neo-conservative was a liberal mugged by reality? Reality, you can be sure, is operating behind this metaphor in a very sooty skin. The American dilemma is, as it has always been, that no matter how elevated the supposed issue of the debate, it is always just one step away from a minstrel show. LI is infinitely depressed about that.

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