cows are awesome no seriously if you’re
a family in the developing world a cows
a fantastic asset
the milks nutritious you can sell it in
the market for additional income and the
manure is great for farming so a couple
of years ago I was serving as Nepal’s
youth ambassador to the United Nations
and one of the delegates told me a
fascinating story a dutch NGO figured
out how awesome cows are and decided to
give a bunch to Indian villages to help
them out sounds like a pretty good idea
when they came back a year later they
found a disaster unfolding you see what
had happened was a bunch of the
villagers took their girl child out of
school to look after the cows there’s
now a generation of girls in these
villages without an education aid the
more important story for me is how good
intentions the very best of intentions
can lead to disaster the military has a
term for this it’s called friendly fire
we’re in the heat of battle in the
confusion that ensues you end up
shooting people you care about and I’m
gonna argue to you today that foreign
aid is friendly fire that despite our
best intentions we’re spending billions
of dollars that are hurting people and
perhaps we need to redesign the way we
spend this money but before I tell you
what my argument is it’s really
important for me to tell you what it’s
not because you see there’s a little bit
of a cottage industry of people arguing
against Aid and the sorts of arguments
they make is aid is ineffective because
of waste and poor planning and they’re
sort of right here’s an example so The
Times newspaper here in the UK ran this
story where they found out that this
think-tank IIED charged D fed the UK aid
agency twelve thousand seven hundred
dollars for one blog post
that’s waste if you want to talk about
poor planning d fit again decided to
build an airport in st. Helena and after
having spent 350 million dollars
building it realized that you can’t
actually land aircraft there you see
they forgot to check for wind shear
which is a sudden change in the wind
direction and speed that makes airports
pretty much useless so there is waste
there is poor planning but I think my
argument actually goes further y-you see
because these arguments just say aid is
ineffective I’m gonna argue today that
aid is counterproductive you’re not just
wasting you’re actively hurting people
that you want to help the other reason
why my argument is different is the
cause the cause here is waste and poor
planning and to be honest I don’t quite
buy it because if reason poor planning
is all that’s wrong you need to cut the
waste and plan better you don’t throw
the baby out with the bathwater the
argument I’m gonna make to you today is
that aid does not work because of human
nature the problem runs deeper so what
do I mean by this see I’m gonna show you
a lot of academic evidence experiments
I’ve run in Nepal a lot of other studies
that prove the point
but at its essence the idea is really
simple people care about what they pay
for imagine going out for dinner the
more expensive the restaurant the better
the service you expect the better the
food recalibrate things based on what we
pay for foreign aid grants to
governments are free and my simple
contention to you is that people care
less about governments that are funded
by foreign money simply because it’s
free the idea is what foreign aid and a
lack of taxation structures around the
world is doing is it switching off
accountability demands people don’t care
as much as they should my road to this
realization started with trips to Nepal
so I go back home to Nepal quite often
and every time I’m in Nepal the most
puzzling thing for me is why people
aren’t more
Stav no seriously pick up the paper and
the number of corruption cases you read
about is astonishing and then you talk
to people and they seem to sort of be
yeah this is what’s going on and you
know so it really puzzles me just to
give you an illustration this isn’t just
a Nepal problem right this is across the
developing world there’s a lot of
corruption meet mr. Jacob Zuma he’s the
president of South Africa you know he
decided to spend 16 million u.s. dollars
to do security updates to his house and
then some people went to check out what
these security updates were and they
noticed a swanky new swimming pool so I
imagine the conversation went something
like
mr. president there is a swimming pool
and Mr Zuma with a straight face said to
I mean so on the face of corruption like
this how do you not get mad right
this really puzzled me and the answer I
kept getting back from people was it’s
not my money I don’t pay taxes foreign
aid is funding this why should I care
this actually doesn’t make a whole lot
of sense
if you look around there a couple of
people now in the audience who are very
confused those are the economists
right because in economics what they’re
taught is that money is fungible money
is just a store of value so if you take
this brand-new dollar bill or if you
take this crumpled old dollar bill and
you walk into a dollar store you’re
gonna get something equally useless you
shouldn’t make a distinction right it’s
the same thing
so it turns out though before you
economics teaches us we don’t think this
way now it’s a little too close to the
American elections for me to provide
evidence of human irrationality but
turns out what goes on is this we make
accounts in our heads
mental accounts and based on where money
is coming from we put money into these
different accounts and what studies have
shown is that say you win a lottery
you’re gonna put that money not into
this big bracket called money but into a
smaller bracket called lottery money and
you’re gonna splurge you’re gonna spend
that money in a way that’s very distinct
from your hard-earned income why are we
human so irrational turns out evolution
is partly to blame so there’s this idea
called loss aversion which means that we
are designed to care more about losses
than gains losses hurt us more than the
pleasure from gains there is a super
cool experiment run by two professors at
the University of Toronto and Chicago
that illustrates this so these
professors they went to a factory in
China and they said an electronics
factory and they said we’re going to
give you an 80 yuan bonus now they
rolled out the bonuses in a different
way to half the workers they said we’re
gonna give you an 80 yuan bonus and if
you don’t make us say 10 extra
calculators we’re gonna take it back so
the other half they said make us ten
extra calculators and we
give you this bonus same 80 yuan and yet
what they found is that the group that
we’re told you already have this money
but we’re gonna take it back
worked a lot harder they didn’t want to
lose the other group was dealing with
gains we make this distinction in our
minds and this is where taxes and aid go
their separate ways
tax income for us represents loss it
represents going to work every day it
represents looking at your boss’s face
every day right eight income is coming
from abroad and it doesn’t represent
those things and therefore people don’t
care as much so alright so there was
this theoretical framework all right
this might be an idea I decided to go
chat do some experiments in Nepal to
check if this is true I ran six
experiments fortunately for you I only
have time to show you one of them but
here’s what I did
so I showed people this article that
talks about corruption in Nepal a
politician in Nepal has stolen money
right now there’s only one difference in
these articles so the article on the
right talks about the money coming from
foreign aid the article on the Left says
the money came from taxes that is the
only distinction the corruption case the
amounts involved everything else is the
same I then asked Nepal EES how angry
are you about this corruption case do
you want to punish this bloke and if you
do how long do you want to send them to
jail the results bear out the theory the
blue here represents the people who read
the tax story and what you find is they
are a lot more pissed off they want this
bloke punished and they want to send him
to jail for a longer time across the
board people felt the pain when it was
tax money involved in a much bigger way
than when foreign aid was involved now I
also wanted to triangulate use other
methods to see if this is what happens
and so I had about 500 police
respondents fill out these forms I said
alright you’ve read these articles now
tell me how you feel and then I ran
content analysis on this and again what
you find is that the people who read
that tax story use adjectives more
they’re just generally more pissed off
right the third piece of evidence is
cross-national analysis and this makes
it really interesting because this takes
us out of the developing world context
and into the develop role context so one
of the things I wanted to check was in
the United States there are some states
like New Hampshire where I lived that
don’t have income tax right now Montana
has income tax
I wanted to see do Montanans and New
Hampshire people demand different levels
of accountability from their government
simply because they’re paying taxes or
not or are they aware of more taxes or
not what I find is that they do right
and so the finding here is that taxes
make you demand accountability and when
you get free money it switches off
accountability demands and fortunately
for you don’t have to take my word for
it there are other scholars who found
the same thing when it comes to oil
income and they’ve also done
ethnographic studies there is now an
increasing literature that foreign aid
might have a negative impact on
accountability demands alright so what’s
next
am I here to tell you to go home and
write to your MPs saying copy aid
absolutely not that would be disastrous
if you look at the stories coming to us
today from Syria from across the world
the UNHCR needs more money not less
there are emergency interventions that
we need to fund a lot more my findings
are only related to development aid and
even their what I’m suggesting is not
cutting the funding it’s redesigning the
funding we need to work with human
nature realize how human incentives work
and build our aid programs around that
rather than working against it so what’s
the answer this is gonna make me really
popular here taxes in fact more taxes
right so I mean two things by this one a
lot of developing countries have a
really small tax base tax penetration is
really low if you can help these
countries expand their tax base such
that more citizens are paying taxes
these citizens are going to start
demanding more from their government the
second thing though is a lot of these
citizens are incredibly poor people
living on less than
two dollars a day so am I suggesting you
go tax them more no of course not but
poor people pay a lot of taxes if you
look at indirect taxes sales taxes and
the percentage of their income that
spent on these commodities where people
pay a lot of taxes and so the second
approach is to just make people realize
how much taxes they already pay what
difference do I think this is gonna make
well it’s gonna engineer entitlement
when that person then goes to the
hospital in Nepal and is asked for a
bribe he or she can say no I won’t pay
this because guess what your salary
comes from my taxes this idea of
accountability of engineering
entitlement is what I think will lead to
sustainable development so again the
takeaway from my talk for you is this
foreign aid and a lack of tax structures
has made people switch off
accountability demands and it’s hurting
development by redesigning aid in a way
that helps expand these tax structures
by making people demand accountability
from their governments we can spark an
accountability revolution that will lead to real development thank you