Toxic Aid: Economic Collapse and Recovery in Tanzania

315 Pages·2014·1.15 MB·English

by  Sebastian Edwards

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TOXIC AID
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Toxic Aid
Advance praise for
“Opposingsidesonforeignaidfiercelydebatewhetheritspursgrowthoractually
doesharm.SebastianEdwards’fascinatingtaleofaidinTanzaniasuggestsitcan
doboth.HeremindsusthatthemorerecentsuccessofaidandreforminTanzania
isundoingthedisastercausedbyaid’sdecades-longsupportofdomestictyranny
andcorruption.Amust-readforbothsidesoftheaiddebate,orforallthosewho
simplycareaboutpoverty.”
WilliamEasterly,NewYorkUniversityandauthorofTheTyrannyofExperts:
Economists,Dictators,andtheForgottenRightsofthePoor
“Brilliant analysis from one of our leading thinkers on economic development.
EdwardsplacestheexperienceofTanzaniainthebroaderandcontinuingdebate
about the effectiveness of foreign aid. His sober and thorough dissection of the
historical record leads to a powerful conclusion: the international assistance
provided from 1961 to 1981 proved highly toxic, but outside support subse-
quentlybecamemoreconstructive.Thiscontroversialvolumewillbecomeamust
readforanyoneconcernedwithprosperityandstabilityaroundtheworld.”
Simon Johnson, former chief economist of the International Monetary Fund
andauthorof13Bankers
“Tanzanianeconomicpoliciesresultedinadisasterofmonumentalproportions,
aided and supported by most of the foreign aid community through the first
several decades. Edwards provides an excellent insightful, balanced, and well-
documentedanalysisoftheeconomy’simplosion,itsturnaroundinpoliciesand
performance, and the role foreign aid providers played in the debacle and the
recovery.Thisfirst-ratebookshouldberequiredreadingforallthoseinterestedin
development policies and African economic development. It also provides an
invaluable overview for those non-specialists wanting to learn more about the
Tanzanianexperience.”
AnneKrueger,ProfessorofEconomics,JohnsHopkinsUniversity,
andHeraldL.andCarolineRichEmeritusProfessorofScience
andHumanities,StanfordUniversity
“In this compelling and highly readable account of the Tanzanian experience,
SebastianEdwardsexposesthefaciledebateoverthequestionofwhetherforeign
aidisharmfulorbeneficial.Bydistinguishingtheapproachesthathaveworked
fromthosethathavefailed,Edwardsdemonstratesconvincinglythatthequestion
cannotbeansweredunconditionally.Thisbookshouldberequiredreadingforall
thoseinterestedhowforeignaidcanbeusedtoachievepositiveoutcomes.”
Robert Lawrence, Albert L Williams Professor of International Trade and
Investment,HarvardKennedySchool
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“This book is a must-read for anyone interested in African economic develop-
ment.SebastianEdwardsisanexcitingnewvoiceinthedebateonforeignaidin
Africa,andexpertlyusesthecaseofTanzaniatoshedlightonthegood-andthe
bad - that aid can do. Employing the latest statistics, and drawing on his own
extensive first-hand experience advising the Tanzanian government, Edwards
weaves an engaging tale of failure and redemption in one of Africa’s most
intriguing nations. I look forward to recommending this book to my friends,
colleaguesandstudentsalike.”
EdwardMiguel,OxfamProfessorinEnvironmentalandResourceEconomics,
DepartmentofEconomics,UniversityofCalifornia,Berkeley,andauthorof
Africa’sTurn
“This engagingly written ‘analytical narrative’ fills a gap in the literature on
development. It goes inside a country that has experienced failure (Tanzania
1961-1981)and,plausibly,success(1996totoday).Edwards’valuableinterpret-
ation of this case exploits his vast experience and his mastery of the scholarly
literature.Regardingthecontroversyover“doesforeignaidwork?”heshowshow
theanswerdependsonthepoliciesandprobityofthecountry’sleaders.”
RobertKlitgaard,ClaremontGraduateUniversityandauthor
ofTropicalGangsters
“InTanzaniaglobalacademicfashionshavebeenatypicallyinfluentialwithboth
donors and governments. The resulting roller coaster is splendidly dissected in
thisimportantbook.”
PaulCollier,OxfordUniversityandauthorofTheBottomBillion
“Doesforeignaidreallyhelpdevelopingcountriestodevelop?Ordoesitstandin
thewayofdevelopmentbyenablingcorruptandrepressiveregimesthatpursue
inappropriateeconomicpolicies?SebastianEdwards’importantvolumeonTan-
zania provides compelling answers. With carefully marshalled economic data,
Edwards shows that foreign aid may have been a critical factor in enabling the
governmentofTanzaniatopursueeconomicallyruinouseconomicpoliciesdur-
ing the two decades following independence. Beginning in the early 1980s,
however,pressurefromtheforeignaidcommunitywasatleastequallyimportant
inconvincingTanzaniatoundertakeneededandbeneficialeconomicreformsand
inprovidingresourcestocarryoutthesereforms.”
MichaelF.Lofchie,ProfessorofPoliticalScience,UCLAandauthorof
ThePoliticalEconomyofTanzania
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About the Author
Sebastian Edwards is the Henry Ford II Professor of International
EconomicsattheAndersonGraduateSchoolofManagementandDepart-
ment of Economics of the University of California, Los Angeles. He is a
ResearchAssociateoftheNationalBureauofEconomicResearch,where
hehasbeenCo-DirectoroftheAfricaProject,andChairmanoftheInter
American Seminar on Economics. From 1993 to 1996 he was chief
economist for Latin America at the World Bank. He has published 14
books, including two novels, and over 200 scholarly articles. He has
been an advisor to numerous governments, financial institutions, and
multi-nationalcompanies.ProfessorEdwardsisafrequentcommentator
on economic matters on CNN and other cable outlets, and his op-ed
pieceshavebeenpublishedbytheWallStreetJournal,theFinancialTimes,
the Los Angeles Times, El País (Spain), La Vanguardia (Spain), and other
newspapersfromaroundtheworld.HisbooksincludeLeftBehind:Latin
America and the False Promise of Populism (University of Chicago Press,
2010) and Crisis and Reform in Latin America: From Despair to Hope
(OxfordUniversityPress,1995).ProfessorEdwardswaseducatedatthe
Universidad Católica de Chile. He became a Licenciado en Economía in
1975.HeearnedanIngenieroComercialdegreealsoin1975.Hereceived
anMAineconomicsin1978,andaPhDineconomicsin1981,bothfrom
theUniversityofChicago.
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Toxic Aid
Economic collapse and recovery
in Tanzania
BY SEBASTIAN EDWARDS
1
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3
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This book is for Octavia
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Contents
PrefaceandAcknowledgements xiii
ListofTables xx
ListofAbbreviations xxii
1. Tanzania:FinallyaSuccessStory? 1
2. Tanzania’sMarket-orientedReformsandEconomic
Performance:The“OfficialStory” 9
3. TheWarofIdeasandForeignAid 21
3.1 AfricaandthePlanningApproachtoEconomicDevelopment 22
3.2 TheMarketApproachtoEconomicDevelopment:Fromthe
“WashingtonConsensus”totheGlobalFinancialCrisis 29
3.3 InternationalAid:PoliciesandControversies 38
3.3.1 Theinconclusivenessofeconometricstudies 43
3.3.2 Thebitternessofrecentcontroversies 45
4. TheEvolutionofForeignAidtoTanzania,1961–2011 51
5. TheArushaDeclaration,ForeignAid,andtheCrisisof1979 63
5.1 Background:TheEarlyYearsofIndependence 66
5.2 TheArushaDeclaration 71
5.3 ImplementingtheArushaDeclaration:TheFirstSteps 74
5.4 TheSecondFive-YearPlan,Agriculture,andIndustrialization 76
5.5 ForeignAidandAfricanSocialism 81
5.6 Stagnation,Villagization,Agriculture,andtheThirdFive-YearPlan 85