By Nicolae Cretu
In the private sector, there is always a preestablished success test for any endeavor. Businesses must make a profit. Employees must generate revenue. No rational decision maker pursuing his subjective interests would refrain from evaluating the reasonableness of his efforts, let alone reject any aprioristic cost-benefit analysis. No rational actor would continue to devote scarce resources to a series of similar projects if previous projects were unsuccessful. Governments act otherwise, exhibiting incurable arrogance, their grand taxpayer funded humanitarian projects almost always collapse terribly, revealing a truly baffling systematic pattern: most state-led humanitarian ventures fail. It seems that the absence of any mechanisms of accountability for mismanaging public goods contributes significantly to the aforementioned state of affairs. Political actors justify their malfunctions by the lack of a will, lack of resources, lack of experts, exogenous constraints, pushing for more funding and more administrative resources. Lack of a will is, perhaps, the most exploited excuse to vindicate governmental fiasco in achieving the desired ends, mainly: alleviating human suffering in other sovereign states, either in the short or long-time perspective. It is an obscure and evasive term in policy lexicon, proclaimed to be the prerequisite of policy success, a term which is never defined except by its absence, albeit representing an ingenious attempt to sugarcoat the astonishing fails to deliver any planned promises. The recent example of Afghanistan proves the fallibility of government in directing means to reach the proposed ends: a trillion dollars and two decades of excruciating efforts to secure strategical and humanitarian benefits wasted in several days. It could have been sidestepped. I don’t intend to discuss the normative aspect (what should be done) of humanitarian aid, to avoid spiraling into ceaseless, immensely complex philosophical discussions and a series of difficult meta-moral questions. Irrespective of the moral imperativeness of aiding people in distress, I would limit my common-sense based inquiry on one single positive matter, on the actual ability of governments to achieve humanitarian goals, notwithstanding their moral status.
A Living Example
Southern Afghanistan, Helmand Province, 2010, the combined army efforts of USA, NATO and Afghanistan ensure the commencement of a major military offensive, Operation Moshtarak, intending to drive the Taliban forces out from their poppy farms and strongholds and to provide humanitarian assistance to the pro-West regime, specifically, to the civilians in that area. The chief economic goal was to alleviate essential material needs and to simultaneously ensure persistent growth and restoration in the province. The Helmand River Walley has long been regarded as the central point of economic growth, being the largest river in the country, stretching half the length of Afghanistan. Its waterflow was critical for the agricultural productivity of Afghanistan, therefore, for the whole Afghan economics, agriculture being its largest branch. All circumstances seemed to indicate that the outcome of financing the area would be the foundation of a wealth generating infrastructure for Afghanistan, a guarantee of prosperity and opulence in the long run. However, it turned out to be one of the greatest failures of humanitarian initiatives.
The policy makers disregarded previously undertaken attempts to transform the region, traceable back to the 1900’s, which proved to be a disastrous analytical fallacy. In 1946, the Afghan government contracted a major American company, Morrison-Knudsen, tasking them to build two major dams, to enlarge the irrigation canals and to develop new roads. The predominant goal of the project was to enhance the standards of living through infrastructural improvements, farm building, improved electricity access and flooding protection.
The project suffered from considerable engineering problems from the very beginning. Erecting the first dam resulted in salt deposit generation, which rendered a huge portion of the soil completely unsuitable for agricultural purposes, challenging the cost-effectiveness of the project. The building and maintenance costs suddenly skyrocketed exceeding even the most pessimistic expectations, forcing Morrison-Knudsen, Inc. to reduce the overall cost to the initial level by cutting budget regarding basic development activities, a mistake which has challenged the sustainability of the project. A funding crisis in 1940’s persuaded the Export-Import Bank of the United States to issue a 21 million loan for the project.
Unpardonable ignorance regarding the local, context-specific knowledge which couldn’t be assessed by the experts in charge has generated a plethora of vital issues. What if the project would have been successful? Well, it would significantly increase the water inflow. It turned out that the local farmers did not possess the relevant knowledge and could not deal with the additional water flux. The numerous instances of flooding fields have caused a reduction in agrarian yield up to 50%. Further problems arose due to a bypass of the local cultural and socio-economic elements constituting a complex organizational system, which could not be formalized theoretically before the actual project began. Alas, the complete neglect of the contextual information resulted in the aggravation of the situation and a waste of resources. Moreover, the positive intentions caused some negative, unanticipated consequences. The Helmand Valley canals failed to transport farming water but served as an excellent cover for the Taliban soldiers as they fought against the US army. The Helmand fields, which yield nearly 40% of the world’s heroin supply, constituted a funding source for the Taliban in the following years.
Despite the significant challenges, the funding continued. Two political rationales can be emphasized to explain the unreasonable tendency to keep on funding the project, despite its inefficiency and uncertainty. Firstly, the project was approved during the Truman administration, which pledged to support developing countries by providing humanitarian assistance in Truman’s inaugural speech. Secondly, Afghanistan became a critical strategical area in the context of the Cold War, the US strived to align Afghanistan with the main Occidental values, contributing to its interest in spreading capitalism.
But the failure to stabilize the Helmand province is only a microcosmical embodiment of the broader humanitarian work in the post-Taliban government. According to a report issued by US Senate Foreign Relations Committee, 97 percent of Afghanistan’s gross domestic product is composed of military spending and international donations. Consider the implications of the abovementioned finding: in the best-case scenario, a withdrawal of these funds will inevitably lead to a short run collapse of the economy. Furthermore, according to a report by the UN Office on Drugs and Crime, the opium production in Afghanistan has increased by over 3000 percent between 2001 and 2011, while the revenue from opioid production rose by 130 percent. The combined attempts to induce endogenously sustained stability and development have failed again, imposing gargantuan opportunity costs and suboptimal allocation of resources. The Afghan experience motivates and illustrates the central question of this enquiry: How is it possible that centrally planned, generously financed, well-intentioned, expertly staffed initiatives have failed to improve the lives of Afghan people, worse still, causing degeneration of the former conditions? In an effort to provide adequate explanation, it is vital to consider the limits of humanitarian action and to reconciliate the theoretical models with the empirical data.
Thinking as a politician
The broad term ‘humanitarian action’ encompasses any form of assistance and support delivered, such as military interventions to avoid wartime civilian casualties, immediate emergency relief in the case of natural disasters or meagerness of rudimentary resources, and a wide array of long-run oriented actions to improve the vulnerable economic situation and to prevent economic shocks from occurring in the future. Regardless of the ethical stance, the cornerstone of modern humanitarian ideology is the overarching impression that first world countries, assuming their organizational superiority and the greater resource inventory, are apt to improve a critical situation in a foreign, sovereign country, given the necessary resources, time and will. The current ideology is characterized by a complete disregard for the constraints of any action, including the humanitarian act. A shortage of these givens for humanitarian action is often scapegoated in political assertions attempting to justify the failure to deliver expected outcomes. Consider a few examples.
“Today, we not only have the financial resources to end extreme poverty once and for all, but we have the technological knowledge and know-how to realize the Goals. ... The way forward is marked; it is only the political will to achieve the Goals that is in question.” Millennium Development Goals, 2010
“With effectively used resources, political will and mutual cooperation, we can succeed in helping Afghanistan to build back better.” NATO summit meeting on Afghanistan, Secretary-General Ban Ki-moon, 2010
“Ultimately, the Afghan National Security Defense Forces have the equipment, numbers and training to fight back. They have what they need. What they need to determine is if they have the political will to fight back and if they have the ability to unite as leaders to fight back. That’s really where it stands at this point.” White House Press Secretary Jen Psaki commenting on the takeover of Afghanistan by the Taliban forces, 2021
Curiously, the explanation always takes the same form, notwithstanding the actual degree of funding, administrative involvement, and consideration of anterior errors: it’s just a matter of resources and will, if only we had enough of it… But if this was the case, wouldn’t the chief orchestrators of humanitarian energies have considered these flaw inducing proclivities long ago? A careful assessment of the proposed excuses across the history of humanitarian programs yields a bewildering conclusion, year after year, the apologetic mantra seems to be immovable. It is a failure of the will, a shortage of resources, and a matter of unfortunate peripheral events. For some reason, these factors serve consistently and systematically as stumbling blocks to progress for humanitarian plans. The real question is how much funding is enough. Clearly, there must be other reasons.
Even the shallowest investigation of the matter at hand reveals a twofold problem. First, those implementing the humanitarian actions will inevitably lack perfect information, the relevant context-based knowledge inaccessible by traditional means of informing. It is the so-called information asymmetry. For example, it is virtually impossible to accurately assess the attitudes of the indigenous Afghanis towards a certain action of the foreign decision makers before the action occurs. Additionally, it is difficult to isolate appropriate perception factors and to formalize a behavioral rule which will govern Afghanis’ conduct in a similar situation in the future, this would require a laboratory experiment with replicable conditions, as done in natural sciences. Even if it were possible, it would require a change in the course of actions and adaptability, features which don’t define central planning with a predefined set of cash flow funding. Secondly, humanitarian action is not totally compatible with the incentives of those in political control and those in power in the country where the action is taking place. The interplay of these two factors unambiguously entails that there must be a clear limit to what government-led humanitarian aid can achieve in practice, no matter the amount of resource spending and the political will. In reality, the enumerated factors contradict the foolishly romanticized humanitarian system mentality which permeates those involved in the humanitarian action, the so-called ‘if there’s a will, there’s a way’ attitude. As one meta-analysis of 97 econometric studies concluded, “When this whole literature is examined, a clear pattern emerges. After 40 years of development aid, the preponderance of the evidence indicates that aid has not been effective.” The next task consists in identifying the real reasons why humanitarian action fails.
Central Planning vs Markets
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” F.A. Hayek
Contrary to the mainstream views of society, which pursue to articulate the multifaceted interactions between millions of individuals in comprehensible mathematical rules identical to those formulated in the natural sciences, the ambitions, plans and guiding incentives of millions of individuals are often incongruent and unconnected to each other. A key aspect in determining the success of any economical intervention is finding out whether the decision-maker can efficiently coordinate the intermingling and potentially unrelated actions of many people in order to promote economic progress. More importantly, can those engaged in humanitarian action learn from their faults and make necessary changes in their actions to direct their effort to the anticipated level of success? Apparently, the adaptability of any decision-maker unit requires empirical feedback to reveal the incongruencies between the projected result and the actual result. In other words, how exactly the future humanitarian actions will be different from the past humanitarian actions? What feedback mechanisms are in place? As it turns out, there are none.
A quote by Aristotle formulates the essential economic questions in a formidable fashion: “It is easy, and in every man’s power . . . to give and spend money; but to determine the person to whom, and the quantity, and the time, and the motive, and the manner is no longer in every man’s power, nor is it easy.” In what way should one decide how to allocate limited resources amongst competing uses? Should a good or a service be manufactured at all? How to determine the minimal cost? How to establish the quantity of the good produced? Essentially, there are two main alternatives in which this economic problem can be solved. Resource allocation within markets or via central planning.
In a market framework, individuals, dichotomized into buyers and sellers within each market transaction, exchange goods and services, usually for a monetary price assigned to each unit. Each market participant is guided by his own subjective plans and preferences, and they use the monetary value of each item of service or good to coordinate their actions in ways that each of them considers to be the most suitable way to accomplish their desired goals. For example, if an individual decides to buy a can of beer for $5, he values the can of beer more than he values the $5 bill. The individual who decides to sell a can of beer for $5, obviously, values the $5 bill more than the can of beer he forgoes. In the end, participants at both sides of the transaction chain end up being better off, since their utility has increased by changing a good they value less for a good they value more, according to their subjective preferences revealed in voluntary actions. For any given individual, prices and his own profit and loss account are the guiding principles acting as directing devices, providing endless feedback for whether the individual has allocated the resources he owned in the most highly valued use or not. These indicators are the signals available for each market participant. Instead of following a predefined plan for resource allocation with an anticipated array of ends, each market participant follows his own plan, considering the actions of millions of dispersed individuals, guided by prices, profits and losses. These numerous deliberate exchanges eventually result in a state of aggregate welfare, all market participants involved in transactions are better off according to their own subjective values which motivated their transaction choices at the time of the transaction.
The second alternative for resource allocation is central planning. In the central planning framework, the planning entity allocates resources according to a predetermined blueprint, striving to achieve a particular set of goals devised by the planning entity. The planner lacks signaling mechanisms present in the market system, therefore, he must rely on alternative sources of reaction, for instance, the expected output vs the real output, which is less informative than the market signaling, because it only indicates the degree of success of the plan’s implementation, it doesn’t specify whether the plan was better compared to any other allocations of resources, such as other plans. As a matter of fact, comparing the expected output to the actual output is terribly uninformative when assessing the aggregate welfare, as we will see in the following reasonings. In the case of humanitarian action, central planning takes in place within various overlaying bureaucracy levels, from governments to NGO’s, frequently interconnected through funding. In any case, the planning is organized beyond the market system. Generally, humanitarian actions consist of unilateral transfers from donor governments to receivers without monetary exchanges across the transfer chain. The goods or services are not valued monetarily since there is no payment mechanism in the actual transfer. The planner lacks any information about the tangible value the receiving party associates with a provided good or service, because he doesn’t know the willingness to pay of the receiver. If we define receivers as the population of the country situated on the receiving side, it follows that the receiving government doesn’t know either.
Why, then, the market system is superior in its adaptability in resource allocation? Answering this question will reveal the staggering reason why the humanitarian action fails.
Economic Calculation and Markets
The splendid economic puzzle doesn’t consist in deciding who gets what, and when. It consists in deciding who gets what, and when, while using limited information. Relying on scattered knowledge, most of which is inarticulate, implicit, and silent before the actual transfers occur. In this sense, a market is a self-actualizing autonomous machinery, which adapts to any fresh insights with a remarkable efficiency. Markets are adaptable. They allow individuals to make use of information available to others and to perfect their economic problem-solving algorithms. There is a surprisingly simple concept which conceptualizes the causal link between markets and adaptability and helps explain why socialism fails while granting the luxurious right of abstinence from sophisticated, exquisite philosophical arguments which nobody can provide a clear definition of. It’s called economic calculation.
Simply put, economic calculation is the determination of the expected gained or lost value after a future action. After the comparison of the expected variations in value after various future actions the economic actor can choose the socially optimal one. Monetary prices encapsulate the relative scarcity of goods in any market context, prices are wonderful information sources precisely because they allow people to act on the information contained in prices without needing to possess any additional knowledge. The price analysis is a fast method of coordinating fragmented information across a tremendously complex society without the need to know anything else. Prices allow people to evaluate the price of inputs and the expected profits, to choose the most profitable resource allocation while including the preferences of other participants in a specific market, and the profits and losses accounts serve to evaluate whether the estimate was accurate or not. This complex machinery of reasonings can be simplified in the following example.
Suppose that a businessman constrained by a budget of $3 must decide what to produce. He decides to produce a can of beer for a cost of $3 and to sell it at the price of $5, the market price. This is the most profitable choice he has. The $2 profit is incredibly informative. The businessman could have produced other products for less profit, but since the per-unit profit of another options is less than $2, it means the can of beer produced is the most valuable option for consumers. If the businessman would incur a loss, it would indicate the need to redirect resources in a more profitable area. Moreover, the level of coordination required for the complementary goods to be produced and to be available when needed is astonishing. A healthy market provides necessary information for someone to anticipate the need for the complementary goods and provide them when needed, in this case, it could be beer snacks. A central plan, obviously, is devoid of the enumerated advantages. Owing to the absence of the economic calculation, the information required to solve an economic problem simply does not exist outside of markets.
A humanitarian action which results in the increase of output is not a successful one. It is a linear attempt to solve a complex problem. There is no point in increasing the number of schooled children when the labor market does not value them higher that it values non-schooled children. Consider a recent report of Doctors Without Borders on the delivery of assistance for Afghanistan, which illustrates the pointlessness of any action taken outside the market structure. “Lashkargah hospital is piling up with advanced medical equipment—digital x-rays, mobile oxygen generators, scialytic lamps—donated by a range of states including the US, China, Iran, and India or through the Provincial Reconstruction Teams. This equipment is usually dropped off with little explanation and no anticipation of maintenance; most of it sits in boxes, collecting dust, unopened and unused.”
Economic progress consists in solving economic problems, not merely increasing output of some planner-desired good by investing resources or reducing a bad by reducing the output of that bad, when the decision-maker has no idea how the receiving society values this output, since there is no price tag involved. This thesis is clearly demonstrated while analyzing Afghanistan’s GDP. Consider the continuing humanitarian efforts in Afghanistan as a whole. In 2010, Afghanistan’s GDP was around $16.3 billion. The associated annual growth rate of GDP was about 10% for the past 5 years. However, the standard of living in Afghanistan has not improved in those years of aggregate macroeconomic indicators’ growth. A significant amount of this money came in the form of humanitarian aid, but it had little to no effect on the actual welfare of Afghan citizens. Progress consists in fundamental changes of market conditions. It consists in adapting to the everchanging conditions, innovations in forms of new goods and services, and a hastened response to shocks in consumer preferences or supply changes. These processes can only persist in markets.