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Building Stuff in Afghanistan: the view from the ivory tower

As a fresh-faced young undergrad, safely ensconced in academia, I am cocky and sure about one thing; I don’t know anything about the real world. I do, however, know some things about lofty theories and models that tend to receive a big “harrumph” from people who live in this “real world”. Still, I feel there has to be some value in these ideas. There better be for the price I’m paying to learn them!

There was a very interesting article in the Economist two weeks ago, about the US Military’s use of development dollars as a quasi-military strategy. “Wooing Afghans with Development”, as the magazine puts it, is the idea in a nutshell. The US and NATO are now spending millions of dollars on cell phone networks and technical infrastructure, in a bid to provide Afghans with better technology. Seriously, read the article. It explains the pragmatic reasoning behind the strategy very well. There is plenty to be discussed about the military’s rapidly expanding conception on how to fight and win a war, driven in large part by General Petraeus’s new Afghan strategy. Reading the article though, I was most interested in this anecdote, buried beneath the fold:

Yet this is just the latest example of how NATO’s military “surge”, which has seen 30,000 American troops thrown into the fray this year, has been accompanied by a splurge on economic development. To take another, in December the first of two ten-megawatt diesel generators is due to roar to life in Kandahar’s provincial capital, providing more reliable electricity to its 800,000 citizens. This project, which will cost $227m, is controversial. It is clearly unaffordable for the cash-strapped government that must one day take charge of it.

What’s so exciting about this, you ask? Well, I just spent the better part of last week bleary-eyed in the basement of a library, staring at and memorizing the details of a certain influential idea in development economics: The Solow-Swan Growth Model. This rather simple, maybe even elegant, model of how economies grow over time has something to say about plunking down two ten-megawatt diesel generators in Kandahar.

The key concept of the Solow Model is the idea of a steady state. How much a country produces is a product of its inputs, capital and labor (I know this is tedious, bear with me). There’s not much we can do about labor, populations grow or shrink based on a lot of factors. If anything, developing countries tend to have some of the highest population growth rates around. The other input is capital, the factories, trucks, computers, and bridges that are need to produce and sell things. Capital turns out to be the key for Solow. A country can only invest in so much capital based on how much value it produces and how much of that in turn is reinvested. The problem is that trucks and computers break over time. If a country doesn’t have enough money to invest, it doesn’t have enough money left to keep the old stuff functional. Fundamentally, an economy will strike a balance; it will keep just enough capital to be maintainable with the savings at hand.This is the so-called steady state, where the amount of machines and things to make stuff stays relatively even (see point A on the image below).

The Solow Model

All economic concepts can be explained by the intersection of two lines. Can you draw this? Congratulations, you now have a master's degree.

What’s the application here? As The Economist pointed out, generators break. Right now the US can be counted on to replace a broken widget, but what happens when they leave?  Like the model predicts on a grand scale, an Afghan government with limited funding will not be able to keep all the new “stuff” in Afghanistan functional. Maybe the generator will last 20 years, but it won’t last forever, and barring some other change there won’t be money to replace it from inside Afghanistan. The vast majority of development assistance is what economists call a “level effect”, in that the level of capital has been temporarily raised.  Without a proportional increase in savings to maintain this new “stuff” though, an economy will return to its steady state. Afghanistan will end up back where it started, minus the $227 million generator.

Here the issue gets thorny. How does a country save and invest more of its money? A simple answer is, by having more money to begin with. As long as there is billions and billions of dollars in international money going into Afghanistan, shouldn’t some of it stay there? Doesn’t that sound an awful lot like what PDT is doing?

One more thing. You’ll notice the Solow Model has no formula or equation to answer whether putting a generator in Kandahar right now is a good idea. All the model says is that the generator probably won’t be replaced. It doesn’t say anything about the value of giving Afghans steady electricity, or cell phone access free from Taliban influence for the immediate future. These things may well be worth the cost. From my well-cushioned chair high in the ivory tower; I’ll just keep my mouth shut and let people who have been to the “real world” decide.

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5 Comments

  1. Edward Rees says:

    Simon,

    I have strong reservations about some of what you say, but the blogosphere is these days the real world.

    Keep blogging!

    It makes interesting and thought provoking reading. And the day that so called “Old Hands” cannot learn from “Young Turks” is the day the “Old Hands” need to be roughly pushed aside

    Edward

  2. Simon says:

    Hi Edward,

    Thanks for the encouragement. What my humble post doesn’t reveal is my own reservations about development theory, not because this particular model doesn’t make a convincing argument, but because equally plausible ones exist that contradict it. Not to mention the limitations of modeling in the first place…*sigh*. If anything, education is about accepting that you don’t know much more than you ever will know.

    I’m reminded of something Harry Truman supposedly said. “I’d like to meet a one-handed economist”. He was referring of course to the figure of speech you can count on EVERY economist using. “One the one hand this makes sense, but on the other hand…”

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