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Dani Rodrik
The Kennedy School's Dani Rodrik: 'The World Bank exaggerated benefits and its opponents exaggerated the cost and understated the benefits.' (Staff photo by Rose Lincoln)

HARVARD GAZETTE ARCHIVES

Mozambique cashew case illustrates hazard of imposed solutions:

Kennedy School professor examines what went wrong with industry changes

By Alvin Powell
Gazette Staff

Mozambique was once a world power in the cashew industry, but today it is a bit player, and there is apparently nothing the World Bank can do to change that.

The World Bank's controversial intervention in the eastern African nation during the 1990s forced thousands of city workers out of their jobs and became a focus for anti-World Bank protesters around the globe.

The controversy around the case sparked the curiosity of Dani Rodrik, Rafiq Hariri Professor of International Political Economy at the Kennedy School of Government. After being frustrated by competing claims of the intervention's success and failure, Rodrik decided to investigate for himself.

"I was terribly frustrated because you couldn't figure out what was actually happening. Everyone was citing their favorite statistic," Rodrik said.

What Rodrik found, in a study conducted with colleagues Margaret McMillan from Tufts University and Karen Horn Welch from Stanford University, was a case neither as bad as protesters claimed nor as beneficial as World Bank officials insisted. Despite the turmoil it caused, the intervention had almost no net effect on the local economy, according to the study, which will be presented at an upcoming Brookings Institution conference on trade.

One of the intervention's main benefits, it seems, is as an example of how not to reform a developing world nation.

"The World Bank exaggerated benefits and its opponents exaggerated the cost and understated the benefits," Rodrik said. "I think some of the broader lessons have been internalized and we're seeing the results applied across the world."

But lessons learned and applied elsewhere do little to help the poor farmer in Mozambique. The experience has left the industry demoralized and the government still undecided on how to proceed. The hoped-for revival of cashew farming, Rodrik said, has largely not taken place.

"The situation there has been poisoned for the foreseeable future," Rodrik said. "[The cashew] won't be part of any future success in Mozambique."

Poverty alleviation

The intervention began with the beneficial goal of boosting income for the millions of poor farmers who plant cashew trees and sell the nuts as a cash crop. By the time the World Bank took a hand in the drama in the early 1990s, the industry had already fallen from the highs of the 1960s and '70s when it had been the world leader in cashew production.

Mozambique had undergone years of turmoil following independence from Portugal in 1975, including a decade-long civil war that began in 1982. The industry that the World Bank saw in the late 1980s consisted of two main sectors: the farmers who produced raw cashews and the industrial processors who prepared the nuts for export.

In an effort to protect the cashew processors from international competition, Mozambique had banned the export of raw, unprocessed cashews. That forced local cashew growers to process their product inside Mozambique. This kept raw cashew prices low, effectively subsidizing the operations of the city-based cashew processing factories.

The World Bank pressured the Mozambique government first to remove the export ban and then to remove subsequent quotas and export taxes as high as 60 percent that had been put up in the ban's place to protect the processing industry.

The World Bank's intended result was that the nation's inefficient processing industry would be reduced, with workers and resources moved to more profitable ventures. The main benefit, meanwhile, would go to the cashew farmers, who would see their prices for raw cashews rise along with world demand for the nuts.

That happened, Rodrik said, however in a way that illustrates the danger of imposing economic solutions from outside a nation. It also happened in a way that robbed the reforms of any beneficial effect they might have had.

With the reforms forced upon it, the Mozambique government did little to sell them to the populace, Rodrik said. Factory owners, who had just bought the factories during a recent government privatization, had the rug pulled out from under them by the reforms.

The prevailing sense that the government wasn't committed to the reforms prompted the cashew processing factory owners to keep the factories open and the unemployed factory workers to not look for other work. Instead, factory owners lobbied the government to rescind the reforms and workers took to the streets in demonstrations.

Out in the countryside, farmers considering whether to plant more cashew trees also weren't sure what the government would do and so decided not to take a chance and plant more trees.

The net effect from the reforms, the study found, was a benefit of about $6.6 million on an annual basis generated by new efficiencies in the cashew sector. That was largely offset by an estimated $6.1 million loss annually on account of unemployment among the processing industry's 11,000 workers. Rural farmers, meanwhile, did see some benefit, but it only averaged out to between $5 and $6 per year for the average cashew-growing household.

"Total gains for the economy were probably close to nil because the gains to poor farmers were offset by unemployment in the cities," Rodrik said. "It turns out it was a really puny affair for the amount of controversy generated."

Lessons learned

Rodrik said the case provides several important lessons that are already being applied in development work around the world. First is that imposing conditions on a nation from outside won't work because the people in the government responsible for implementing the reforms won't necessarily believe in them.

Second, though reforms that affect price are important, they are often inadequate without structural measures, such as adding training programs to give skills to idled workers and changing cashew distribution methods to ensure price increases are kept by farmers, not traders and middlemen. Social factors, political environment, and simple logistic factors - such as whether there are good roads for farmers to transport their crops to market - can also make or break a project.

"You can never achieve successful outcomes by making governments do things they don't want to do," Rodrik said. "Individual cases like that of Mozambique's cashews make us wiser.







Copyright 2007 by the President and Fellows of Harvard College