Chris Coyne
In a recent article, Anders Ashlund calls for a new Marshall Plan for Egypt in order to take full advantage of the recent political uprisings:
The lesson from the end of communism is that the international community needs to make a maximum effort early on, as the United States did during the postwar Marshall Plan, to mobilize large financial resources for Egypt to help it get its policy right.
Ashlund also tells us what is required for success:
In order to be effective, aid must be timely, that is, it must come early.
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It is vital to focus on one key country.
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Conditions [on the aid] are necessary to provide a reform government with the right incentives and promote beneficial causes.
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Politically, that means full democratization with the introduction of maximum transparency and checks and balances.
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He even gives specific figures regarding the costs of his proposed program:
Depending on the ambitions of those in a position to help, it could be $20 billion for a three year period, and most of this sum would come from international financial institutions.
As readers of CP can guess, I am skeptical of Ashlund’s grand plan for Egypt for several reasons. The various knowledge and incentive problems with aid (see here, here, and here) have been well documented. Elsewhere, I have argued how foreign interventions suffer from what Hayek called “the fatal conceit.” Ashlund’s plan is another data point in support of my argument. How else can one interpret a call for “a full-scale program of political and economic transformation” in Egypt?
As I pointed out in an earlier post, the uprisings in Egypt can be seen as an indictment of social engineering or ‘nation building.’ To understand this, contrast the decade of failed U.S. efforts to win the ‘hearts and minds’ of Afghan citizens with the weeks between the initial uprising and Mubarek’s resignation. Ashlund now wants the international community to provide “timely” aid to take advantage of the uprisings they were unable to predict in the first place (if only the U.S. government had a super computer...oh wait, they did!)
The one attempt by Ashlund to consider incentives, his call for aid conditionality, is weak and fails badly. There is consensus that aid conditionality and 'policy ownership’ have failed to deliver. This is not just a position held by aid skeptics as illustrated by this OECD report.
How will aid be distributed within Egypt? Who will make these decisions (mentioning the World Bank, The European Bank of Reconstruction and Development, and a “new” U.S. fund are not enough)? What incentives do donors and recipients face and how confident can we be that Ashlund’s grand plan won’t fall prey to the same issues that have plagued past aid efforts? These are basic economic questions that go largely unanswered. I am of the position that the burden of proof should be on those who claim that their proposed program can successfully redesign entire societies according to their plan of how that society should look. Good intentions are not enough.
Of course Ashlund may point to the past success of aid to Egypt in support of his call for further aid. Since 1979 the U.S. has given Egypt about $2 billion in military aid annually. This aid was indeed successful in creating a brutal army which continues to impose significant costs on ordinary Egyptian citizens. Of course Ashlund isn’t calling for further military aid, but instead for benevolent economic aid. The sad irony is that the effectiveness of past military aid has created a strong and entrenched military which will make movements toward liberalism and openness that much more difficult in the future.
Hayek (1988: 76) noted that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” This seems like common sense, but as Ashlund’s grand plan for Egypt demonstrates, it once again bears repeating.
HT to Bill Trumbull for bringing the Ashlund article to my attention.
