TCS Daily

Spending Warren's Money

By Roger Bate - July 19, 2006 12:00 AM

With Warren Buffett's largesse added to his own, Bill Gates has about $60 billion to spend on health and development -- how should he spend it? The Copenhagen Consensus, a group (and process) put together by Danish academic Bjorn Lomborg, coordinated a response to this question last year. The group commissioned papers from experts on the best life-saving interventions in various fields and then reached a consensus on what provided the best 'bang for the buck' if they were to be in charge of $50 billion to spend. Their conclusions could be of use to Mr. Gates.
Top of the list of value-for-money aid investments was combating HIV AIDS; improving nutrition, opening up trade, preventing malaria, and improving clean water delivery were some of the next best interventions.
The Bill and Melinda Gates Foundation should be commended for supporting HIV and malaria clinical research. However it has avoided dirtying its hands by staying away from on-the ground interventions such as drug delivery, spraying insecticides (for malarial mosquitoes) or running bed net distribution and support programs -- all of which would save lives today. Furthermore, although vaccine research is important, vaccines for both HIV and malaria are still a mirage and one should recall that there are millions who do not receive much-needed and widely available vaccinations for other ailments.
Indeed, the Gates Foundation, like most aid agencies, has done little in any of the actual areas of prioritization identified by the Copenhagen Consensus. Aid agency chiefs, subject to the whims of politicians under pressure from increasingly powerful interest groups (such as specific disease/country proponents), will never say that disease/country/approach 'A' should take priority over the equivalent 'B' even if the case is obvious. In short, aid agencies often behave as though ignorant of basic economics; not optimizing scarce resources to save the most lives. The Copenhagen Consensus exercise has contributed greatly to forcing the aid community to prioritize programs.
The details in the Copenhagen Consensus report could be challenged in terms of project performance. Using proxy indicators can make measurements difficult. For example, bed net distribution is equated with a reduction in malaria though existing evidence shows this is a terribly flawed assumption, since many nets are never slept under. As importantly, many of the programs considered successful have been driven endogenously by poor country governments or the private sector; whereas many aid programs are not (or no more than rhetorically) endorsed by recipient governments. New aid announced at the G8 summit last year as well as new money from Gates will be susceptible to this problem, too. Without full endorsement aid usually fails, as has been repeatedly demonstrated, most recently in The White Man's Burden, William Easterly's masterful book on the limits of aid.
Gates must also realize that aid flows reflect the cost of providing services for the poor, not the value of those services. As Easterly says 'Would Microsoft Corp. promote an executive who bragged about setting a record for costs? Would Berkshire Hathaway invest in a business that headlined its remarkably high spending on office supplies? Unfortunately, the foreign aid business has a sad history of bureaucrats under heavy pressure to spend money on foreign consultants and four-wheel-drive vehicles but with zero pressure to find out whether that spending translates into the forever elusive "technical assistance," "capacity building" and "civil service restructuring" that are supposed to help the poor. Mr. Gates' challenge -- much harder in foreign aid than in business -- is to make sure his final customers are satisfied.
The customers are the poor population, not government officials. Gates, like so many western governments, has given money to poor country governments and inadvertently made them less accountable to their populations. Take Uganda, where approximately half of government revenue comes from aid. As Andrew Mwenda, a Ugandan political commentator has explained, with more and more aid the Ugandan Government has less need to look after the electorate since it needs it less and less for revenue. Aid can encourage the nepotistic patronage system in Uganda and weaken any parts of the private sector by pushing the corrupting influences of patronage into it. So whether the hypothetical aid of Lomborg's exercise or the real money of Gates and Buffett, it may do more harm than good.
Perhaps, after all, Gates is well-advised to just back disease research in western countries -- at least the money is not stolen or misused. Thankfully, Mr. Gates (let's call him the G1) can be relied upon to keep his eye on the ball and not be distracted when more immediate concerns arise; last year's G-8/Live 8 celebrity extravaganza for saving Africa is now mostly forgotten since Africa didn't rate much of a mention at the recent G-8 meeting in St. Petersburg.
The G1 will likely perform better than the G8 but he still has his work cut out in finding the right interventions, funding the right groups to undertake them, and not undermining fledgling democracies in the process. It's a much tougher job than becoming a multi-billionaire; only time will tell if he's up to the task.
Dr Roger Bate is a Resident Fellow of the American Enterprise Institute in Washington DC and a Director of health advocacy group Africa Fighting Malaria. He has testified before US Congress several times on the misuse of foreign aid.

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