Friday, 23 December 2016

Reading Snippet - Why Nations Fail (13)

The Tragedy of Charity


To demonstrate the detrimental impacts of extractive institutions, the authors raised how charitable efforts are wasted due to these institutions being counter-productive.

The common complaint regarding international aid is that very little funds actually get to the people in need due to corruption. Under the extractive regimes, there is no incentive for the government officials to allow the masses to benefit and raise their standard of living; in fact, such improvements may mean harming the elite's existing preferential status. As a result, even if there isn't much money to gain from, they would not help aid organisations do their job.

This is particularly the case where national-level assistance is provided, such as those from IMF or World Bank. They may stipulate macro-policy changes such as freeing up the market or granting independence to Central banks, but the elites would either pay lip service or secretly crawl back after initial implementation - purely due to incentives and the high stakes associated with the extractive organisations.

There are some 'micro charitable' efforts that aim at delivering local benefits, such as operating local clinics, and using local creativity to overcome incentive issues. An example raised is to demand local staff to clock in and out to avoid absenteeism in a clinic, but the staff quickly founds ways round it such as damaging the clocking machine and then the head office refusing to have it replaced. While such stories sound like 'local laziness', it is actually due to the political and economic extractive mechanisms removing all incentives for people to work and be productive; as a result, their incentive becomes that of avoiding work. Unless the extractiveness of the society is addressed, local creativity would be countered by the adverse local creativity, and money would be wasted.

No comments:

Post a Comment