Dr. Shanta Devarajan is a professor at Georgetown University’s Edmund A. Walsh School of Foreign Service, where he teaches development economics. Previously, Shanta worked for nearly three decades at the World Bank, where he was the Senior Director for Development Economics (DEC) and served as acting Chief Economist. This episode starts with Shanta’s account of his early work on indicators to measure state fragility at the World Bank, and how his understanding of fragility has evolved over time. We then explore how country rankings are linked to aid allocations, and why venture capital is a better model to help countries escape the fragility trap than current practices. We also discuss how international financial institutions navigate the relationship with governments. Reflecting on his work prior to the Arab Spring, Shanta argues that development financing institutions should use knowledge and data to build greater trust with citizens – their ultimate clients. We then get more technical and discuss how taxation in oil-rich countries like South Sudan can promote solidarity, how conflict can shape government decisions on infrastructure development, and the role of macroeconomic policy in fragile states. This episode was recorded on April 14, 2021.
Dr. Shanta Devarajan is a professor at Georgetown University’s Edmund A. Walsh School of Foreign Service, where he teaches development economics. Previously, Shanta worked for nearly three decades at the World Bank, where he was the Senior Director for Development Economics (DEC) and served as acting Chief Economist. This episode starts with Shanta’s account of his early work on indicators to measure state fragility at the World Bank, and how his understanding of fragility has evolved over time. We then explore how country rankings are linked to aid allocations, and why venture capital is a better model to help countries escape the fragility trap than current practices. We also discuss how international financial institutions navigate the relationship with governments. Reflecting on his work prior to the Arab Spring, Shanta argues that development financing institutions should use knowledge and data to build greater trust with citizens – their ultimate clients. We then get more technical and discuss how taxation in oil-rich countries like South Sudan can promote solidarity, how conflict can shape government decisions on infrastructure development, and the role of macroeconomic policy in fragile states. This episode was recorded on April 14, 2021.
Shanta’s Blog ‘Future Development’ at The Brookings Institution: https://www.brookings.edu/blog/future-development/
EPISODE RESOURCES:
#3 - Shanta Devarajan: Can Knowledge, Data, and Trust Help Break the Fragility Trap?
PAUL BISCA: Hi and welcome to f-world the fragility podcast!
Together with our guests from around the globe we explore how fragility manifests across economics, politics, culture, development, and the environment, and how we can build a more resilient future.
My name is Paul Bisca and I am your co-host together with Mihaela Carstei and Johan Bjurman Bergman and today we are speaking with Dr. Shanta Devarajan who's a professor of practice of development at Georgetown University's Walsh School of Foreign Service.
Before joining Georgetown, Shanta had a distinguished career at the World Bank with stints including senior director for development economics, also known as DEC, acting Chief Economist, Chief Economist for three regions in the World Bank including the Middle East and North Africa and South Asia as well as for the Human Development Network, and among many other things, Shanta was the director of the World Development Report 2004 “Making Services Work for the Poor.
Before 1981 he was on the faculty of Harvard University's John F Kennedy School of Government and his research comprises over 150 publications on public economics, trade policy, natural resources and the environment, and general equilibrium modeling of developing countries. Born in Sri Lanka, he studied math at Princeton and got a doctorate in economics at UC Berkeley. Shanta, welcome to our podcast!
SHANTA DEVARAJAN: Thank you very much Paul it's a pleasure to be here nice to be with you thank you so much.
PAUL BISCA: So, we want to start this conversation with a question we ask all of our guests, because we want people to know who the people who work on development fragility and conflict are. So tell us a bit about your story; tell us a bit about your formative experiences and what led you to become interested in fragility.
SHANTA DEVARAJAN: Okay that's a long story! I'll try to make it very brief. Yes as you said I was born in Sri Lanka. We moved to New York City when I was eight years old. My parents joined the UN and so I grew up in New York and then in Switzerland because we moved to Geneva when I was in high school so I went to international schools throughout my formative years, and then went to Princeton, and as you said studied math.
But I have to say towards the end of my time at Princeton I was getting more interested in the application of mathematics than pure mathematics and my advisor happened to be a professor in both economics and mathematics so he said: “well why don't you look at economics”, which I did and I really liked it so that's when I ended up doing my PhD at Berkeley in economics but still at that time the, way I was I think, it was still very theoretical economics.
I did a dissertation on natural resources but it was about uncertainty in resource stocks and how that affects resource strategies, a purely theoretical piece but then my first job was teaching at the Kennedy school at Harvard. And that's when I began to confront the policy aspects of what I was teaching because even though I was teaching microeconomics to the students, the students kept asking me why: do we need to learn this, what's the application? And that forced me to actually confront that question and come up with applications and start working on those things. As a result I myself got very interested in those applications and started following it, and then, given my background in developing countries, my father was at the UN and grew up in that environment, I started looking at the applications of economics in development and that's how I then ended up at the World Bank.
Then the fragility aspect actually came up when I was at the Bank after I'd been at the Bank for about nine or ten years. It was a very interesting anecdote, if you like, because this is how it really got started at the bank as well. We used to have an annual meeting where we would review the countries that had performed particularly badly. We would review all countries but would pay a lot of attention to a country that had performed particularly badly in the past year in terms of their economy and poverty reduction and things like that and it struck me that every year it was the same countries that were on the list. And we would say “oh we have to do better with Burundi next year”, and then next year that country was still on the list, and that's what got me thinking. I remember talking to Paul Collier about this because Paul was the director of the research department at the time saying “you know there's something going on here. Why are these countries the same ones that are on the list?”. Actually there were some countries that joined the list but very few left the list, and that's when we started thinking that there may be something unique or distinctive about these countries.
PAUL BISCA: This is a great segue to one of the questions I wanted to ask you. I mean there's many of them. I would absolutely love to ask you to make the pitch for economics that you would make for the students. Not necessarily as a way to understand fragility but tell us a bit about the paper that you wrote in 2011. It was about escaping the fragility trap and what fragility is to you. We want to know, from the experience you've gathered, how you define that term.
SHANTA DEVARAJAN: That's a good question. So, I'll tell you about the paper because that actually then gets us to the fragility and that again was as a result of experience. At that time I was the Chief Economist for the Sub-Saharan African region and there, what I noticed was that we would allocate aid based on research that I and others had done, based on the quality of policies and institutions in countries. And there were a group of countries, which were these fragile states, where the policies and institutions were terrible. That's one of the reasons they were fragile states, but as a result they got very little aid.
And that then led to a syndrome where countries would be doing very badly and would get even less aid because they were doing badly and so they would do even worse the next year and then they would get even less aid and they would get into this syndrome where there might be a situation where they were caught in a trap. And I remember that the country where this came home to me was Guinea Bissau. It's a small country perennially in fragility and was getting just a piddly little amount of aid and they were having serious problems with electricity. They needed very little money to rebuild the electricity plant, the one electricity plant in the country, but they didn't have enough money and so the power kept going out and of course that made it easier for rebels to run around and shoot people and that just kept getting worse. So, we began to think that maybe this way of allocating aid had a problem with it, even though as I said I contributed to the analytical foundation, so I think it was well versed on strong foundations. But we thought there may be a problem, which is that for these countries we should be thinking of aid not necessarily as just allocating it where it's most productive but rather think of it as taking a risk, it's a bit like venture capital.
So, with Guinea Bissau if we continued to allocate aid the way we normally did they would never grow so we thought why we don’t just take a gamble and put a lot of money into Guinea Bissau, and that still may not work, but if it does work, that will get them out of this trap. That's the that's the way in which we evolved this idea of the Fragility Trap: that too many countries were faced with this syndrome of being caught in a trap and if we continued business as usual they were not going to get out of the trap. That's the sense in which it was a trap.
Now, what does that say about fragility? Well, it is that these are countries that, when you start looking at how they ended up in the situation, in this trap, in the first place, you discover that these are countries where the system of governance was so weak that the state no longer was able to provide basic security to its public. That's sort of a fundamental function of the state but the truth is that if the state is unable to provide basic security chances are it's unable to provide a lot of other things like basic education or health or water or sanitation and that's why this the fragility is really a syndrome of a complete breakdown of the institutions that make a state function.
PAUL BISCA: It's interesting you mentioned Guinea-Bissau as a perennial example. At some point when I was looking at security spending in Guinea-Bissau, I discovered that in the early 90s, I think, there were about five generals or something like that in the army and by the early 2000s or mid 2000s they were like 45 so it's clearly money is being spent but the value for money is not there.
SHANTA DEVARAJAN: And also. I mean, you know the other side of Guinea-Bissau is that it's become a Narco state. I mean the drugs come in from Latin America and they're transferred to Europe through Guinea-Bissau. I mean I remember when I was Chief Economist, there was a situation where they were going to investigate one of the airplanes in the airport and before the investigators came, they blew up the plane. The plane was in a hangar, I mean it wasn't flying, but they exploded it so think about that. That's a 30-40 million dollar plane so the stuff in there was probably worth much more than 40 million.
PAUL BISCA: So, I've asked you many questions already and, if it's up to me, I could ask all day but I'm sure my two co-hosts have ideas as well. So who would like to take a risk as Shanta mentioned about investing in fragile states and ask questions. I think Mihaela's next.
MIHAELA CARSTEI: Shanta, you gave us a definition of fragility that is focused more narrowly on providing security and other services. Can you elaborate more? Also, what other dimensions of fragility should we consider in order to better understand what’s going on in the world today?
SHANTA DEVARAJAN: Okay so there's always this tension because the broader you make the definition, the harder it is to then pin down particular solutions, but I think that’s part of this syndrome. So the working definition of fragility is what I mentioned earlier which is that the state is not able to provide basic security to its citizens but there are many ramifications of that. One is that the state is unable to provide other basic services like education, and health, and water, and sanitation. The other is that that means that if the state is not providing basic security, in the eyes of the citizens the state has lost legitimacy. So fragility is also a perception from the point of view of the people in the country and that's very important because it's not necessarily what we think from outside the country, although you know we're the ones who produce the fragility indices and things like that. But it's really that once the citizens are doing things like going around the state or trying to undermine some of the excesses of the state, then you're in a fragile situation whether we observe it from our indicators or not.
MIHAELA CARSTEI: This is so interesting, what you just said, about fragility being also a point of view, a perception of the citizens within a country. If we’re going to apply that dimension of fragility, then all of a sudden, the concept expands to places like the Western world, United States, Western Europe. These are not countries and places we traditionally think of as fragile, not even Eastern Europe. However, if we’re looking at it through the lens of losing trust in the state, citizens losing faith in the state, then all of a sudden fragility is far broader than our traditional list of fragile and conflict affected states.
SHANTA DEVARAJAN: And by the way I think we have to be very clear; fragility is not a black or white thing. I mean it's not like yesterday you were not fragile and today you're fragile, right, it's a continuum and there are different degrees of fragility, which is sort of different degrees of the probability that you might erupt into violence and civil conflict, so several countries several rich countries have been moving down that scale. In fact, even in the list that the World Bank produces, well some people at the World Bank produce; I don't think it's part of the official list, but there are people who produce these fragility indices as a continuum in terms of the probability of eruption to civil war and the United States has been dropping in that indicator. They don't publicize it very widely but that’s but again as you said the people living in the US have already felt it.
The other thing that this came home to me when I was in the MENA region, I seem to sort of end up in all these fragile situations, but in the MENA region think about it these were not low-income countries these were middle-income countries and yet the other phenomenon in MENA was that it's not just one country or two it was the whole region was fragile because of the spillover effects. So, you had a civil war in Syria but that created fragility in Lebanon or problems in Iraq. So yeah, we have to get out of this idea that fragility is something that only affects very poor countries. It's everywhere, including in very rich countries.
JOHAN BJURMAN BERGMAN: Most definitely. Let's stick around there in the MENA for just a little while longer because you were part of the team, or led the team perhaps even, producing the World Development Report 2011, which was all on fragility. I was actually studying Arabic in Damascus in Syria right as this was unraveling and I know we've talked a lot about this before, how even the most well-informed institutions in the world such as the World Bank missed the signs that were all around. I know myself being in Syria, you know, in 2010 I think Syria had welcomed more tourists than Australia and the following year it went to zero and the year after that it was complete civil war so as we now celebrate or at least mark 10 years since the start of the Arab spring and the publication of the WDR 2011, how has your thinking around fragility and conflict changed over this time and specifically informed by those learnings you might have taken away from the experience during the Arab spring.
SHANTA DEVARAJAN: Absolutely, and I think you were right to say that not just the World Bank but I think the whole international community was caught quite unawares of the Arab spring, and this comes back to the point about listening to the citizens of the country rather than our perceptions. Because the indicators that we observe normally, things like growth and poverty and even income distribution, were all improving for the whole decade prior to the Arab spring, during the decade of the 2000s. In fact, I remember the IMF had a conference called “Tunisia a model country” in October 2010. Now think about that, that was one month before the guy put himself on fire in Tunisia! Right, they didn't invite him to the conference, but you know that's the essence of the disconnect that we were facing.
So, over this period, what we realized was first, we have to listen to the public. Because there were certainly voices in Tunisia in fact pointing out that this decline in inequality was misleading because the way it happened was that it was squeezing the middle class. See, what was happening in Egypt and Tunisia and many of these countries was that the poor were doing a little bit better the rich were doing very much better, and the middle class were becoming poorer, which meant they were looking more and more like the poor. So, inequality was going down in that sense, because the middle class and the poor were more equal to each other but it was going down for a bad reason. So that tells me that there are different ways in which we should be measuring and monitoring economies if we want to really capture what's going on, and some of our traditional indicators may actually give us misleading results.
The best example there is again the MENA region because while all of these indicators were favorable in the 2000s if you look at the happiness indicator that the Gallup poll evaluates, MENA was the unhappiest region in the world and the happiness indicator was going down. In those four countries where the Arab spring took place, it was going down fastest, so we're now trying to monitor that on a regular basis along with others.
But the other aspect, and this is again maybe telling a few truths out of school, but it's already out there in the public domain. The other aspect is that I frankly think we did have some of this information. Even before the Arab spring we had done work on cronyism in Tunisia and Egypt in the 2000s but we didn't publish it and we didn't talk about it because the governments in power who were the ones guilty of the state capture basically threatened the World Bank saying “look you publish this and you can kiss your country office goodbye”. Now the problem was therefore when the Arab spring came and these dictators were thrown out and then we did publish these results the public said “why didn't you publish this five years ago, we knew this was there, you had done the analysis ,why didn't you tell us”, and we explained it to them they then turn around and say “so then why should we believe you now. If that's what guides what you do your credibility is shocked’. I mean they said this is all in the public domain because there was a case where you know the World Bank had a program where we funded NGOs and we funded this really good NGO in Tunisia that did a lot of this transparency work. When they received an award from the Bank they returned it and said “we don't want to be associated with the World Bank because of its lack of transparency and we're a transparency organization we can't accept the award”, so we do a lot of damage in the long term to us and to the people in the country by suppressing information.
PAUL BISCA: I actually have a follow-up on that. The people I've worked with at the World Bank are some of the most dedicated people I've ever met with genuine passion for the countries they work in. They put up crazy hours of work, so why do you think this happens? I'm wondering here if you can speak about the perception of the people. Looking to listen to the perceptions of the people, it's almost like depending on your profession or your temperament you may be inclined to look for different indicators on what goes right or what goes wrong. So what you hinted at right now was this role of knowledge and building credibility, and building a sort of instrument for building an honest relationship with stakeholders other than just the government. Can you tell us a bit about what sort of disconnects that happen here, because I think it's important to say that a lot of this is the result of biases that we all have depending on how we're trained, or our professional experience or so on, so it'd be great if you can shed some light on that.
SHANTA DEVARAJAN: I've thought about it and agonized over this for a long time, and you know I think it boils down to one very simple point: the World Bank has a knowledge relationship with a country, and it also has a financial relationship with a country. The financial relationship has to be with the government by definition, by the articles of agreement, because they're the only ones who can pay the World Bank back but there's nothing to say that the knowledge relationship has to be exclusively with the government. The knowledge relationship is with the public, but because the financial relationship is with the government inevitably everybody thinks that the knowledge relationship is also with the government. You know when we refer to, we as in when I was at the Bank, we would refer to the client frequently thinking it's the government, and I kept having to say no, no, no, the client are the poor people in the country. The government is an intermediary, and sometimes not a very good intermediary, and particularly in some of these fragile states. So it's a very difficult balancing act because if you've got this financial relationship with the government how far can you push outside of the government to get knowledge to the public? But I think we have to be very clear that every time we compromise that second function, we are actually undermining our effectiveness.
MIHAELA CARSTEI: I wonder if we can expand the definition of the client so that when it comes to knowledge, the client also includes all of us, citizens in donor countries and the rest of the world, not just in the client country. Ultimately, this knowledge is a global public good. So, how can we make this information free and open so that it's not hidden and at the whim of some captured or corrupt government?
SHANTA DEVARAJAN: I would fully agree and that's why I kept insisting that the client is the public in the country. I don't want to say that the US taxpayer or the Swedish taxpayer or whatever is a client. They are part of the movement to try to make the world a better place for those poor people living in Africa or wherever, so I think we're all on the same page there.
The question is are we faithful to that objective and I think there are many ways in which we slip in terms of that objective. I mean one is, and this is no secret either, the US even responding to its taxpayers sometimes has other objectives, national or parochial objectives with the World Bank assistance. Go back to what happened after the Iraq war for evidence, and that by the way has created a whole few decade of fragility in Iraq. So, we can go there if you like, but the question is to keep that objective always in your mind because I think when we compromise by suppressing information or refusing to release information we are shortchanging that objective. It's a very hard thing for a bureaucracy to accept, because it's so much easier in a bureaucracy to stop a publication than to release a publication. It's almost asymmetrical. I mean I can't even tell you the number of times when the communications department of the Bank stopped a publication of mine. And I like to think that I'm fairly sensible, it's not like I'm some kind of reckless crazy. They don't necessarily appreciate the costs of doing so because I really think that, to them, the bureaucratic cost of having released a publication is that somebody gets upset. And by the way I've had cases where I have released a public or they have published something of mine and the President or Prime Minister or Finance Minister of the country has called up the president of the World Bank to say you know “you should fire this guy this is irresponsible”. To their credit, the presidents of the WB and, there are like two or three different Presidents, I mean this happened like once every two or three years, have defended me. I mean they've seen what's true.
But you wonder how many people have been either reprimanded or they self-censor knowing that if this comes up there would be trouble. When I get a call from the president of the World Bank I do worry a little bit, you know, what did I do?
PAUL BISCA: I have a question about that. Have you ever stopped a publication from going out?
SHANTA DEVARAJAN: I stop a publication if I'm not convinced that the analytical basis is solid. There were many times. And then you know I have not stopped a publication, but I have revised it or reformed it, you know, because researchers, people like yourself, try to be provocative. I mean I remember a case where there was a perfectly good paper but the title was very provocative and when I consulted with the Country Director before publishing the paper he said look you know I don't have anything wrong with the paper but this title is going to create headlines, unnecessarily. So, we just changed the title. These are all judgment calls you have to make. But then I refuse to stop a publication that people were trying to get me to stop because there was a footnote on page 10 of the paper that they thought some NGO might pick up on and misinterpret and think we're saying something else and that would get us into trouble. I said come on, that's not a good reason, that doesn't make sense.
PAUL BISCA: I think I think this is really important because what you've mentioned just now is that we should go beyond this dichotomy of large bureaucracy trying to stop publications, government trying to collude somehow so that, in a way, everyone can be a good guy and a bad guy in the story. So it’s a very interesting point you just made. I know Johan has a question but please go ahead and then we go to Johan.
SHANTA DEVARAJAN: Let's think about the public out there, they're not a uniform homogeneous group. So there are factions within the public and you have to be very careful not to be captured by one of them as well. One other thing that we used to do was that we would write reports during electoral campaigns in various countries, and the one thing I would insist on when I was Chief Economist was that we share those reports with the opposition, with all the parties. We used to literally go and give presentations to the opposition party while they were doing the campaign and sometimes, they got elected, so they really appreciated it.
JOHAN BJURMAN BERGMAN: That’s fascinating. There are so many insights and learnings that we’re just collecting as we're talking here both from the work you mentioned, learnings from Iraq, I know you've done a lot of work on that, and also when it comes to knowledge products and the relationship with governments. I think one particularly interesting location that I know that you worked on is South Sudan because obviously as one of the newest countries, really the first country to be born after the shift of the millennium at least in Africa, it was in some ways a new opportunity to apply a lot of the insights and learnings that several decades of work on fragility had yielded, but also in the context of your comment here on the relationship with the government there's also a new relationship with the new government. So what were some of the challenges and some of the opportunities that you saw both in applying the learnings when it comes to a more strategic and operational side but also in the in the relationship building and the collaboration aspect of that.
SHANTA DEVARAJAN: That was a very special relationship which by the way continues. I'm actually doing some work on South Sudan as we speak. So my initial interest I happened to be the Chief Economist of Africa at the time and so I added one more country to my list of 45 countries, so I was quite excited about that, but the other was a personal point which is that I'm a Sri Lankan Tamil and so in some sense my people tried to do what the South Sudanese did but they failed and the South Sudanese succeeded. So I wanted to sort of see this particular example of a secession and see whether it can work or not. And then the other point, which you mentioned, is that this was the first country in about 50 years to gain independence and we had learned quite a lot about development in the last 50 years. And so, can we bring together all of that knowledge to bear on this country? There was quite a lot of enthusiasm and we spent a lot of time training the people. Now keep in mind that the new government most of these people were guerrilla fighters since they were about 12 years old so they really had that very little formal education even and so they and in many cases they were relying excessively on foreign advisers and so on. As you know the outcomes have not been very favorable. I mean South Sudan has gone back into a civil war and I think there were maybe two points that we didn't appreciate. I mean we knew they were there but I don't think we as in the international community didn't quite appreciate them.
One is the degree of ethnic tension within the South Sudanese population. So you had Nuers and you had Dinkas, which are very different groups. And in some sense while they were part of the liberation struggle those differences were papered over but once they became a country they rose to the surface. The second, which again I have been writing about and talking about for a while, was the whole influence of oil. Oil is 90% of the economy there. The real problem is that what oil did was that it enabled the politicians not to be accountable to the public because they didn't have to raise taxes, they had this money coming straight in. So they didn't have to really be scrutinized by the public as to how they spend it and so that's why I in fact in South Sudan I've been trying, I'm still trying, to develop this idea of distributing oil revenues as cash transfers to the public as a way of making them accountable so that then they'll have to tax them. I remember having this conversation with some parliamentarians and I told one of the parliamentarians with whom I was talking “which district are you a member from” and he mentioned some district, and I said, “oh you know I've never been there” and he goes “oh I haven't been there either”. You know he represents this district but he has no reason to go there because they don't pay him, the oil money pays him, and that tells you what the state of accountability is in this situation. That's what we need to correct because there's just too much at stake in this nascent country for us to let it go.
JOHAN BJURMAN BERGMAN: Absolutely. Drilling a little bit more into this because I feel like there might be a very interesting interplay between this kind of ethnic split that becomes more and more pronounced. I know that the President Salva Kiir made a speech just after independence where he said “we're and Nuer we're Dinka but first of all we are South Sudanese” but obviously over time that unity has kind of receded. How do you think taxation could help move a country together and kind of create that coherence within a society. I know that from Sweden there's some interesting historical evidence from the 14th 1500s when we were small tribes that were then brought together. How do you think taxation can be a way of helping a country unite?
PAUL BISCA: A Swede asking a question about taxes is I think perfect.
SHANTA DEVARAJAN: Well, there are two parts to that. The first, and this is not just South Sudan but places like Iraq as well or Nigeria for that matter, whenever you have a situation where the oil is collected or extracted in just one corner of the country in one part of the country, and yet it's the way to service the whole country there's a whole issue of how do you distribute the oil revenues. In Nigeria they've had problems with that for 40-50 years because they kept having this formula, and the formula had different components to it, population and everything else. One part of the formula was that each state got a particular lump sum as well, which of course then led to a proliferation of states you know various states started splitting up because they would get the sum, and Iraq is having the same problem. In Iraq the Kurdish area is basically saying well you know, the amount of oil money we collect is about the same as what we give we get as transfers from the center so why don't we just keep the oil money here. So that's why I've been insisting that the transfer of oil revenues be on a per capita basis. Every individual gets something rather than the state or the district or the municipality gets something, because once you do it straight to districts and municipalities you can start seeing all the jockeying going on between municipalities or within municipalities. If it's every individual it doesn't even matter where you live you just get it so that that's on the one hand.
On the other hand, on taxation that's a good very good point and actually Sweden is a good example of this because taxation is more than just citizens funding the government, it's a demonstration of solidarity it's saying we are willing, I as an individual, I'm willing to pay a tax that will help you, it may not just help me it'll also help you, so it’s a way of signaling that this is a community rather than a series of individuals. Now, it's a very hard transition to make but you're certainly not going to make it if you don't have to rely on taxation. That's why I think that introducing taxation, I mean you look at it, there is hardly any taxation in South Sudan because they don't need it, so if you transfer the oil money so that they have to rely on taxes, that might actually help create that solidarity that comes with taxation.
MIHAELA CARSTEI: The notion of taxation as a potential tool for solidarity is a an interesting way to think about the role of trust in helping alleviate the various situations of fragile states because ultimately in order for any agent whether it's an economic agent or just a citizen to want to engage in that solidarity they have to have the trust that that action will be reciprocated, and that that distribution of oil revenues is going to be done fairly rather than end up in some offshore bank account of a government official So how we do we think about trust in these situations? How do we build it or how is it earned?
SHANTA DEVARAJAN: You know, I think it's a fundamental point in economics as well. Actually, we have to be thinking about all the things we do now that undermine trust, and one of them is controversial, and I get a lot of flack when I point this out, but it is the whole system of subsidies that we have woven into our social fabric in various countries, particularly in oil-rich countries. And take you know we don't have to only talk about fragile states but take an extreme version which is something like Kuwait which is a rich very stable country but it's an oil rich country. And the trust problem is that Kuwait distributes its oil revenues to its citizens using fuel subsidies and public employment. Something like 95% of the labor force is employed in the public sector and they have huge fuel subsidies. Now, first of all this is about the most inefficient way to distribute oil revenues because fuel subsidies create pollution and congestion and all sorts of other problems and public employment, I mean they're not very productive, it's just not a good way to do it. But the real thing is that the sign it sends to the Kuwaiti citizen is that if you want to get a benefit from the state you have to consume fuel and the more fuel you consume the more benefit you get. So it's saying we don't give you the right to choose how you want to spend your benefits, we're deciding how you spend your benefits.
If you switch from that to a lump sum transfer that is actually giving agency to the individual, which is again, saying that the government trusts you to spend it in your best interest. And in fact the empirical evidence is that people do spend it in their own interest. I mean the rhetoric in the newspapers is things like “oh well they'll spend it on alcohol and cigarettes” and actually in South Sudan they said that “oh they'll spend it on another wife”, but I didn't want to discuss whether that was a productive or unproductive investment, but the truth is that the empirical evidence is that when you give poor people cash they spend it on the education of their children or investing in their house or investing in their business. So we have evidence there. o if they are responsible why not trust them and let them do it.
MIHAELA CARSTEI: This immediately makes me think of Universal Basic Income even in the Western World as a means not just to help those in society that need help the most but to also build trust and a stake in the society that we live in. So, any thoughts on UBI and whether or not it's feasible and sort of where it's going would be great to hear. It may not be the closest topic to fragility, but I find it’s usually underappreciated.
SHANTA DEVARAJAN: It's very much connected to fragility; I mean that's what I'm saying: I am proposing UBI for South Sudan. That’s where I want to go. The other thing, and this comes back to the trust that you mentioned Mihaela, is will it get stolen, will it get sent to Swiss bank accounts or whatever? It turns out that today, with the technology we have, we actually can verify and protect those cash transfers down to the individual level. So in India they have this AADHAR card which is an iris-identified cash-card, it's a debit card, and you can transfer the money electronically and it goes to your debit card and nobody, unless they steal your eyes, can impersonate you with that card. And the other thing is you can do it instantly, and in India they've rolled it out for a billion people so it's not like it's that difficult to do it for a billion people in Africa.
MIHAELA CARSTEI: I wasn't aware of that cash card, and it immediately made me think that it could also help address some of the inequities in the distribution of resources to women and to others that lack power in these societies.
SHANTA DEVARAJAN: That's right. It goes to every individual, so the woman has a cash card and the man has a cash card and there's some evidence that this has actually empowered women in bargaining inside the household. In fact there's some there's a recent there was a PhD dissertation that I was one of the examiners for which showed that the program in India actually reduced helped reduce domestic violence. You know when the husband knows that the wife actually now has this cash, and he needs it to run the household he's less likely to beat her basically.
MIHAELA CARSTEI: And she's more able to walk away if needed
SHANTA DEVARAJAN: That's right. She has the outside option.
MIHAELA CARSTEI: And one last question, for now at least. When we think about countries, we tend to think at the macro level, but fragility seems easier to notice at the micro level, at the person, human level. How do you think about the links between macroeconomic policy and fragility? What’s your take on if and how macro policy interacts with fragility?
SHANTA DEVARAJAN: Well, some of it is what we were talking about earlier in terms of aid allocation and so on but I've been thinking a little bit more about that in the context of IMF programs in fragile states and so on because you know many of these countries have their backs up against the wall in terms of macroeconomic balances. We know that certainly the Yemen civil war started the day after they cut fuel subsidies as a part of an IMF program. Now correlation is not causation so there are a lot of other things going on in Yemen, let's be careful about that, but there's certainly something about the role of macroeconomic austerity or physical austerity and its fragility consequences. Now where I'm thinking about this is on the other side, which is in post-conflict situations, the IMF comes out with these reports, and now the IMF has a new deputy director for fragility conflict and violence, but when I look at their macro analysis of post-conflict situations, they are looking favorably upon those countries that have been able to increase taxes and reduce fiscal deficits. In general, that's a good thing in these countries but you really ask yourself the question how do you increase taxes and reduce fiscal deficit, basically fiscal austerity if you’re in a country where these people have been devastated from a civil war and they're very poor and the economy isn't growing and everything is at a standstill? Is it the highest priority to reduce the fiscal deficit? Maybe you should sustain a high fiscal deficit for a few years? Again this comes back to the venture capital idea: you give aid to the country and let them get off the ground because they may still be in a fragility trap. Just because the peace agreement has been signed doesn't mean they're out of the woods.
MIHAELA CARSTEI: They could go right back into conflict
SHANTA DEVARAJAN: They could go right back, as they have done, so we have to really rethink macroeconomic policy, the sort of standard precepts of macroeconomic policy, in the context of post-conflict or in the context of fragility. I think that does require some rethinking.
JOHAN BJURMAN BERGMAN: Incredibly interesting, because I know you're an advocate of really thinking not just development outcomes but peace and stability as a central part of any development strategy and particularly any strategy to counter fragility. So, how can we, through these policies, counter both, and I know you mentioned and talked about prevention before but also prevention after conflict so that it doesn't go into a relapse as you were saying - what are some of the essential policies measures that governments with very limited capacity can take to prevent conflict before it's outbreak but also to prevent recurrence?
SHANTA DEVARAJAN: Yeah so see I think it depends, and that's why I've been pushing the students in my class of whom you are one to concentrate on the causes of the conflict because it depends on what caused the conflict in the first place. The way to avoid the recurrence of a conflict is not to recreate the conditions that caused the conflict in the first place. But unfortunately, I mean that seems obvious, you're all nodding your heads, but it's amazing how quickly we forget that in a post-conflict situation. Let me give you an example. Syria, right, there's a huge devastation of infrastructure as a result of the war: hospitals, schools, bridges, roads, everything has been destroyed. So when there's a peace agreement the first instinct is let's rebuild the infrastructure and you see there's a ton of money that'll come in from all corners and it will be rebuilt from a central government run institution. Now if you realize that the problem that led to the Syrian conflict was this excessive power of the central government, all you're doing is strengthening that central government one more time and recreating the conditions for a replay of the conflict.
But you know you can imagine that the donors, I'm sure the WB is just ready to go in there with a big infrastructure program and rebuild the infrastructure. I'm not even sure that you should rebuild the same infrastructure that was destroyed, because remember, the one thing that has happened in Syria is that half the population has been displaced. Now the one of the reasons they were displaced, one of the reasons they moved, is because their neighbors were shooting at them. Now, if your neighbors were shooting at you and you moved, do you really want to go back to where you came from, to that same neighborhood? So, they may want to go somewhere else but if we build the infrastructure there we're going to essentially force them to move back to the same neighborhood again.
PAUL BISCA: Actually, you facilitate the relationship between the warring parties, I mean it's easier for them to actually have conflict. There was a paper on Iraq a few years ago that actually proved the relationship between transport and infrastructure and conflict.
SHANTA DEVARAJAN: But remember that that goes both ways. You know, infrastructure also facilitates rebel movements. I guess this is this is a good story actually. When I was Chief Economist in South Asia and we were doing the CPIA the Country Policy and Institutional Assessment, and Nepal had scored very poorly on rural infrastructure. Their score was very bad and so they wanted an explanation, and I looked it up and sure enough I said, “you haven't maintained the rural roads enough so that that's why you score very badly” and the guy looked at me and he said “Shanta don't you know we have a Maoist rebellion in this country? If we maintain the rural roads the rebels will be in Kathmandu in no time. We are deliberately under-investing in rural road maintenance as part of our strategy”. And they were right.
JOHAN BJURMAN BERGMAN: You know but that's the kind of thing where you know CPIA tells you one thing and the fragility tells you something else.
MIHAELA CARSTEI: So, this story makes me want to ask how do we gather and integrate this kind of knowledge into the various products that are created inside of development institutions. How do we mix rigorous analytics and knowledge with this kind of local tacit knowledge?
SHANTA DEVARAJAN: I don't think the problem is knowledge. I knew there was a Maoist rebellion.
MIHAELA CARSTEI: Then help me understand.
SHANTA DEVARAJAN: The real problem is that we force people to fit their knowledge into a uniform analytical framework which is the CPIA and we don't give enough flexibility within that framework for them to use their knowledge. They know full well what's going on in the country, they just have to almost ignore it in order to fulfill this common analytical framework.
MIHAELA CARSTEI: Okay so we have to change how we do the analytical framework and include more degrees of freedom let's say. But what's the counter argument, because you do need a degree of consistency, uniformity in your analytics in order to actually be able to draw conclusions and make judgments, comparisons. So how would you think about both sides of this?
SHANTA DEVARAJAN: No I'm not sure you need uniformity in the analysis, you need uniformity in the criteria, so I mean what I try to do with all the countries is to say “tell me the story of how what we're doing in this country is going to help development in the country”, and we're going to hold you to high criteria in terms of the rigor of that story, but that story could be completely different in Nepal as it is in Sri Lanka because the conditions are very different.
It's a little bit, even with projects, I mean we have to supposedly do economic analysis of projects before a project and the trouble is that it becomes such a formulaic exercise that it's almost like checking the box. You go in there and there's a certain analytical framework that you have to put some numbers into and come out with a rate of return above 10 percent, and then the project goes through. Usually that economic cost benefit analysis tells me nothing about what the project is actually trying to do. And they used to come and see the Chief Economist when they have a problem, so they come and say “I'm having trouble getting my rate of return above 10 percent, can you help me?” thinking that I could sort of do some fancy econometrics and get their rate of return up. So then I say look what are you trying to do with this project and it turns out you know they are trying to do some good things but none of that gets reflected in the cost benefit analysis so then they say okay let's change the cost benefit analysis to capture those things that you really want to do because those actually might be good things to do. Now we may not be able to quantify them as precisely as we do otherwise but that's okay, we can work around that and that's much more important than cranking out some numbers that'll give you a 10 percent rate of return.
PAUL BISCA: You're alluding to certain things about how to move beyond fragility and what can be done by institutions. I had a question about what goes wrong in country strategies and how we can do better country strategies, but I’d like to ask it in a different way. I'd like to ask if, let's say you are given absolute powers to do what you want in a particular country and you can pick whichever you want to do the perfect fcv fragility conflict and violence strategy. What would you do, what pitfalls you would avoid and how would you structure that?
SHANTA DEVARAJAN: Again, I don't think there's a single formula for all FCV countries and I'll get back to why I think that. I'll start with that maybe why I think it's not working now, and I think we've talked about this Paul before.
One of the problems is that many of our country directors have both a fragile state and a non-fragile state in their portfolio. And so, there's a tendency not to deviate too much between these two in terms of strategies. I mean think about it like suppose you have two countries, one of which you're trying to get them to reduce the fiscal deficit and the other one you're advocating increasing the fiscal deficit. People look at and say hey how can you be both? But the fact is he's right, that is exactly what you should be doing but it's very difficult even psychologically to balance those two in your head. So, my first response would be: you should make country directors exclusively for fragile states. And in my more ambitious moments I said then you create a vice president just for the fragile states regardless of what region they're in. If they're in Africa, Latin America, or in Asia you put them all together and you have one vice president for fragile states. The other thing is that then you also can take this venture capital idea seriously, because that vice president will be held to a different standard, if you like, in terms of the productivity of their investments compared to the vice president who has all these stable East Asian countries. You want that person to take some risks and you want them to fail. I mean, you can expect them to fail or you tolerate their failure because otherwise you're not taking enough risks.
Then what I would do within the country is really a combination of these things, and it's always a balancing act. In fact we're going to talk about that in class this afternoon but it's a balancing act between empowering the public in a way that they can hold governments accountable but also empowering the government to be able to establish some kind of legitimacy in the eyes of the public. And that's very tricky because you know they remember in Liberia there was this case where right after the civil war, the donors didn't trust anybody in the Liberian government to manage the funds appropriately so they wouldn't give money if it was Liberian-run. So they essentially had a foreigner, actually somebody who's a friend of mine, who's a colleague of yours at the World Bank, come in as the manager in the Ministry of Finance to authorize all the expenditures of the program. This was a line position, not an advisory position: this person had signatory authority on expenditures by the ministry of finance and it was a huge political risk. And you know even now it worked in the sense that in five years they were able to then transfer to a Liberian and they actually got the money, and they actually were able to spend it whereas previously they wouldn't have. It's a very tough judgment call but I think those are the kinds of bold things you need to explore in these extreme situations.
JOHAN BJURMAN BERGMAN: Building on this idea that every fragile state is different, there's a Russian author who says that unhappy families are all unhappy in their own way, if we take one step down, we see that within the fragile states the regions and the districts are also diametrically different. When we do that, we can also discover that within these seemingly chaotic nations there are these islands of well-functioning communities. I know we have discussed before is Severine Auteserre’s book Peaceland where she looks at several of these in DRC and in Afghanistan and tries to turn to the lands around and say okay these countries are largely chaotic and there is largely these fragility issues, but in these communities they have been able to avoid them. What have they done right and how can we scale it up? What are your thoughts on how to actually identify and systematize and scale up these types of working models?
SHANTA DEVARAJAN: The other example that I like to use is Somaliland. You've got Somalia which is a failed state and has been one for about 30 years and you've got this one part of Somalia which is Somaliland that is run really well. And you try to understand the differences. It really comes down to governance. They have a system of governance that actually has checks and balances all the way through the hierarchy in a way that clearly the rest of Somalia does not. And then the question is how do you transfer that lesson I mean how do you get the rest of Somalia to adopt the system of government Somaliland? That you probably can't so lately I've been thinking a different way: let's support that island of stability as much as we can and have them succeed and let's not try to say you know “why can't you be more like them” or you have missions go from one to the other for knowledge transfer or whatever, just let's make sure that this place succeeds, and once they succeed people will start observing their success and then they might adopt it, and they may not. I mean we were actually working on this, of course it didn't end well, but in Yemen in the province around Hadhramaut which interestingly among other things has very low usage of qat, you know qat is this sort of drug that is really killing Yemenis, but Hadhramaut is pretty much qat free. And then we say “how can we get the rest of them to be more like Hadhramaut? but the truth is, let's help Hadhramaut succeed so that we can showcase how much you can get from being qat-free.
MIHAELA CARSTEI: One more question. In all of the countries that came up in our conversation, there’s more than just the WB or the IMF. There are multiple institutions, different kinds of actors, and sometimes they might work at cross purposes and can even make the situation worse. Why is collaboration so difficult and how can we make it better? What are the one two three things that we could do to get the most out of collaboration?
SHANTA DEVARAJAN: I'll take a maybe controversial position on this. The reason collaboration is difficult, to answer your second question, is that these different organizations have different mandates and therefore different objectives. So you could take the classic case of the humanitarian organizations have one mandate and the development organizations that have a different mandate and there's an overlap but it's not a perfect overlap so then you find that that you run up against tension because some people just want to provide food and shelter to those refugees, that's the humanitarian objective, whereas say the WB would go and say okay let's find some jobs for them. Now, it actually takes much more and different activities to do the latter, and this might take away from the food and shelter objective. We can try to make them collaborate more but my latest thinking is: why don't we just live with it. Let's accept that there's going to be this tension, there's going to be some collaboration, and there's going to be some difference in objective. Let's be explicit about it, let's acknowledge that they're on a different mandate and see how we can each do our jobs better. I somehow frankly feel that we spend too much time trying to collaborate across institutions rather than getting on with our individual missions, which are really important
PAUL BISCA: I want togive you a quick question before we wrap it up: what are the one or two things about working on fragile states and conflict or in fragility in general that you wish you would have known starting in this field? When you moved from theoretical economics to the practical aspects of policy, what is the one thing that you would tell your younger self?
SHANTA DEVARAJAN: Well, I think it's two of those things I've already alluded to. I mean the concept of a fragility trap and the idea of venture capital for fragile states was not only something I didn't know but in fact all of my work up to that point was pointed in the opposite direction because I was doing all this work on aid effectiveness and governance and the importance of governance for aid effectiveness, but I think with fragile states that actually was an excessive emphasis. Even though we realized that governance is the most important thing, how you get that governance to improve might actually involve different things.
The second is maybe the rethinking of the whole macroeconomic framework for fragile states, and that has quite a few implications. I mean Iraq was another example, during the peak 2014 the peak of ISIS and oil prices crashing down Iraq was really in deep trouble, plus of course all the wars going on around the country, and so we decided, correctly in my view, that Iraq should get some budget support to be just to be able to keep the place functioning because otherwise it could really collapse and of course if Iraq collapses the whole middle east collapses with it. But you know in our typical fashion we said well for budget support there has to be some policy reforms you know so we should have them do some civil service reform or electricity pricing tariff reform and things like that, because otherwise it’s a, quote, “weak program”, we can't just give them a blank check. I really I had to step in and actually say no this is a time when we do have to give them a blank check. I even I coined the phrase that there are two kinds of development policy operations, there's budget support and life support, and this is life support. For those you don't act expect them to do some you know major institutional reform that they haven't been able to do for the last 25-30 years, suddenly. So we have to really rethink this whole approach to macroeconomic policy and macroeconomic aid or aid to support macroeconomic policies very differently in some of these extreme cases.
PAUL BISCA: That is a really thoughtful way to end our conversation. Thank you so much for joining F-world, we definitely hope that you will give us some blank checks in future conversations. Just quickly by way of summary we've talked about many things, but just to highlight some of the many things we talked about. First, the fact that fragility is a continuum there's a fragility trap and that it's basically it's everywhere. It's going to be in the Western World, and it can be in different countries, and no country is immune to it, so we have to be careful how to prevent it. We talked about the importance of listening to the people and not just the government in fragile states, and the fact that knowledge has a really important role to play in building trust and credibility between international actors and people on the ground. We also discussed the unique role of macroeconomic policy in fostering communities, where even taxation can actually help, which maybe for some of our listeners and viewers might be a strange thing to think about, but it's true. We also touched on the importance of an economic order between different groups achieving a common consensus when we spoke about South Sudan and hot to be more mission focused and allow a greater degree of chaos on the ground between different actors who are trying to achieve the same thing.
Thank you again for all your insights and for the anecdotes you shared with us. Thank you also to our listeners for tuning in to f-world fragility podcast. We hope you found this conversation interesting and inspirational. Please subscribe wherever you listen to podcasts and if you want to know more about f-world please visit our website f-world.org and follow us on Twitter @f-worldpodcast. Thanks for listening.