There are times when you read something so obvious that all you can say in response is ‘Well, duh!’ The sad thing, however, is that the blindingly obvious often isn’t so blindingly obvious to those who dispense our hard earned tax dollars. We need somebody to gather the evidence and prove the point so that people can’t ignore what they really ought to know anyway. So, thank goodness for John Sopko, the US Special Inspector General for Afghanistan Reconstruction (SIGAR), whose reports I have often featured on this blog. SIGAR’s latest report, entitled ‘Private Sector Development and Economic Growth: Lessons from the U.S. experience in Afghanistan’, is now out, and below are some of the highlights:
— U.S. financial aid practices, at times, encouraged corruption, complicated the challenges of coordination within and between U.S. agencies, and kept non-viable Afghan enterprises afloat.
— The U.S. government and stakeholders failed to understand the relationships between corrupt strongmen and powerholders, and the speed at which Afghanistan could transition to a Western-style market economy.
— Senior technical experts often lack expertise in Afghanistan or even in post-conflict or developing economies, and were unable to provide effective guidance and support.
— The simple existence of laws and regulations is insufficient; it is how they are implemented by courts, government officials, and police that matters. Many laws introduced to promote economic activity were not accompanied by plans to build or modify the institutions needed to apply them, and Afghanistan’s weak judicial system left even the best-crafted laws vulnerable to manipulation.
— The U.S. government’s provision of direct financial support to enterprises sometimes created dependent, commercially nonviable entities, as well as disincentives for businesses to use local financial and technical services.
— Assistance provided to Afghan institutions and firms relied mainly on Western technocratic models that often failed to consider how powerful Afghan social groups and institutions influenced public policy and the functioning of markets.
— Due to a lack of understanding and uneven enforcement of market principles, the market economy was conflated with unfair competition, monopolization of markets by politically well-connected firms, unfair trade practices by regional neighbors, and administrative corruption.
— Rapid opening up to trade allowed Afghan consumers access to cheaper imported goods, but the opening of the country’s borders before Afghan goods were competitive with imports hurt domestic producers.
— Fear of government regulatory and tax-collecting institutions reinforced Afghan firms’ historical inclination to stay informal and small rather than risk expanding, hampering both government revenues and private investment.
Well, duh! What amazes me is that anybody thought it might turn out any differently. Stripped down to its essence, the lessons here are:
- Massive foreign aid produces corruption in the recipient country.
- Aid encourages inefficient economic practices.
- Formal institutions, such as laws, depend upon informal institutions, such as local customs and social structures.
- Informal institutions in foreign countries like Afghanistan aren’t the same as in the West
- Foreign advisors don’t understand these specificities.
- Consequently, trying to turn those countries into copies of the West by slapping down Western institutions there and flooding them with Western advisors and money doesn’t work.
None of this is particularly novel. SIGAR is to be thanked for drawing it once again to our attention. Sadly, I don’t get the impression that anybody in power is listening.