Absorption Capability

A post on international aid over at AdamSmithee has me shaking my head at the inability of honest people to fathom certain realities of life in the developing world. All talk of "absorption capability" really is beside the point when talking about a regime like the one that currently runs Ethiopia: the only "absorption capability" that matters in such circumstances is that of Andorran and Cayman Island bankers, and they can handle the inflow of billions just fine. Cash is fungible, and even if the actual aid doesn't get stolen, it loosens up a lot of other funds to be siphoned elsewhere.

PS: I've just found a fascinating paper that details how at least some of these offshore banking schemes work - in this case, those of Liechtenstein, acting in concert with a supposedly "cleaned up" Switzerland.

Comments

[Chuckles]

Unfortunately, the Messiah, Jeffrey Sachs has other thoughts about this.
Really, I dont know what part of developing world politics that fellow doesnt understand.
He was in Abuja some time ago promising Hell and high water - goading the State into defaulting on its Loans - and asking them to pressure for more aid.
Such nonsense.
This, of course, was in Nigeria where the Chief Inspector of Police, the "Number One Law enforcer" has just been forced to resign for...Yep, you guessed it:

http://news.bbc.co.uk/1/hi/world/africa/4184257.stm

http://news.ft.com/cms/s/17feb0f2-69c0-11d9-81e7-00000e2511c8.html

[AdamSmithee]

I think we'd both agree that a lot of the aid is wasted, and that some considerable portion is siphoned off, but I'd love to see evidence for the contention that the considerable majority of aid to Ethiopia ends up in offshore accounts...

[AdamSmithee]

PS, I'd also argue that this is just a terminological issue. If the aid isn't doing what its meant to, it isn't being absorbed. That would include the aid disappearing into offshore accounts...

[captainblak]

i'd say the reason aid is siphoned off is because it is set up to do exactly that. aid in this case is used as a strategic weapon.

[Abiola Lapite]

"I'd love to see evidence for the contention that the considerable majority of aid to Ethiopia ends up in offshore accounts..."

1 - The easy availability of such evidence would only be proof of the bankers' incompetence, so it's unrealistic to expect it.

2 - Even if current aid isn't coming through in sufficient quantities for large-scale looting to occur, things are certain to be different if Jeffrey Sachs' fantasies ever come true; corruption wasn't rampant in Nigeria and the Congo before the late 1960s either ...

[AdamSmithee]

Given that I have greater faith in the efficiency of UK banks than of banks in Ethiopia, presumably this means that UK banks are even better at hiding their shady dealings, so there should be even more money ending up in numbered accounts in Bermuda from UK government funds than from Ethiopian government funds. On your logic, then, surely sending money from the UK to Ethiopia is the best way to guarantee public funds go to public goods? :-)

Seriously, saying that 'evidence would only show that there wouldn't be much to have evidence of' is the kind of argument that works OK in quantum physics, but surely deserves some skepticism in the social sciences...

[Chuckles]

[...I'd also argue that this is just a terminological issue. If the aid isn't doing what its meant to, it isn't being absorbed. That would include the aid disappearing into offshore accounts...]

Then there is no need for the word capability then, is there? That aid isnt being absorbed isnt a direct pointer to incapability. Or incapacity - i.e. of the system in question as opposed to deficits within the delivery system.

As for evidence, there's always T.I.

[Abiola Lapite]

"Given that I have greater faith in the efficiency of UK banks than of banks in Ethiopia, presumably this means that UK banks are even better at hiding their shady dealings, so there should be even more money ending up in numbered accounts in Bermuda from UK government funds than from Ethiopian government funds."

1 - This does not follow from what I've said. Bermuda's government is just fine, and that's the end of the deal that's really at issue here. Ethiopia is run by a Marxist dictatorship that is accountable to no outside power.

2 - As a factual matter, it appears that Abacha did indeed end up hiding most of his funds with UK banks, so what you presented in facetious spirit is in fact partially empirically grounded; more foreign aid ended up hiding in UK vaults than in Third-World ones.

"Seriously, saying that 'evidence would only show that there wouldn't be much to have evidence of' is the kind of argument that works OK in quantum physics, but surely deserves some skepticism in the social sciences..."

A useful proxy is seeing how much of that aid gets to ground level to do an iota of good. If the government doesn't even let you look, or if it does so only after there's been time to rig up a Potemkin exhibit or two, then you have *excellent* grounds for thinking there's something amiss.

Finally, let me ask you this: what on Earth makes you think that a government which cares so little about the well-being of its people that its been willing to destroy their livelihoods in order to hold on to power, will care in the slightest about seeing that foreign aid gets used well? To seriously entertain such notions requires a degree of faith in the innate goodness of Ethiopia's leaders that is not in the slightest supported by the evidence.

[Guy]

1 - This does not follow from what I've said. Bermuda's government is just fine, and that's the end of the deal that's really at issue here. Ethiopia is run by a Marxist dictatorship that is accountable to no outside power.

Maybe I'm wrong here... but didn't Ethiopia get rid of the Marxist dictatorship a while back (not sure when the civil war ended)? My meager knowledge of the country's political economy and casual scanning of the World Bank website suggest that (aside from the disastrous war with Eritrea) it's one of the "star reformers" in Sub-Saharan Africa.

[Abiola Lapite]

"didn't Ethiopia get rid of the Marxist dictatorship a while back (not sure when the civil war ended)?"

Yes, you're correct, I misspoke. Prime Minister Meles Zenawi and the EPRDF are indeed elected, though in practice that has made rather less difference than one might have imagined: read through this guy's archives and see for yourself.

http://ethiopundit.blogspot.com/

The Marxist policies which caused Ethiopia's famines remain intact, and as Mugabe and the Soviet Union have shown, there's rather more to representative government than holding "elections" every so often.

[Gareth]

The EPRDF has "Marxist" ideological roots, but has pretty much abandoned them. The government is authoritarian, pro-US and pro-market as these things go. The EPRDF isn't responsible for the famines of the 1980s, though, that was the Dergue.

[Abiola Lapite]

"The government is authoritarian, pro-US and pro-market as these things go."

It hasn't abandoned its opposition to private land ownership, which is by far the most important policy change it could make in a country whose population predominantly consists of farmers.

"The EPRDF isn't responsible for the famines of the 1980s, though, that was the Dergue."

The EPRDF *is* responsible for all the close brushes with disaster that have occurred under its watch, not just for refusing to return the land to individuals, and thereby robbing them of both incentive and title to use to raise capital, but also for propagating needless wars that have proven a big distraction to useful economic activity.