2.1 INTRODUCTION
Definitions
A World Bank classification of a country in accordance with several indicators, one being economic. There are three economic categories: high, middle, and low, with the middle income category further subdivided into lower middle or upper middle income. Countries with per capita gross national incomes between $996 and $12,195 fall under this category.
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- Options/Futures
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- Economics
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DEFINITION of ‘Middle-Income Countries (MICs)’
Nations with a per-capita gross national income in 2012 between $1,036 and $12,615. Middle-income countries (MICs) are one of the income categories that the World Bank uses to classify economies for operational and analytical purposes.
The World Bank classifies every economy as low, middle or high income. The World Bank uses GNI per capita as the basis for this classification because it views GNI as a broad measure that is considered to be the single best indicator of economic capacity and progress. Low-income and middle-income economies are collectively referred to as developing economies.
2.2 SAMARITAN’S DILEMMA
The Samaritan’s dilemma is a dilemma in the act of charity. It hinges on the idea that when presented with charity, in some location such as a soup kitchen, a person will act in one of two ways: using the charity to improve their situation, or coming to rely on charity as a means of survival. The term Samaritan’s dilemma was coined by economist James M. Buchanan.[1]
The argument against charity frequently cites the Samaritan’s Dilemma as reason to forgo charitable contributions. It is also a common argument against Communism and Socialism, claiming that state aid is equivalent to charity, and that the beneficiaries of such aid will become slothful or otherwise negligent members of society.
2.3 SAMARITAN’S DILEMMA & ZAMBIA’S BUDGETING PROCESS
Samaritan’s dilemma refers to a dilemma in the act of charity. It was coined by with charity, in some location such as a soup kitchen; a person will act in one way of two ways: using the charity to improve their situation, or coming to rely on charity as a means of survival.
The argument against charity frequently cites the Samaritan’s dilemma as reason to forgo charitable contributions. It is also a common argument against communism and Socialism, claiming that state aid is equivalent to charity, and that the beneficiaries of such aid will be slothful or otherwise negligent members of society.
Buchanan’s prescription consists of two parts: The first part is “an explicit recognition of the dilemma by those who are caught up in it”. The second part comes in, once this sort of recognition is passed: the Players involved must, individually and collectively, act strategically instead of pragmatically” (Buchanan 1977: 173). What this means is having once adopted a rule, the Samaritan should not be responsive to the particulars of situations that might arise. He should not act pragmatically and on a case by case basis. Following this rule requires what Buchanan called ‘Strategic courage’. Strategic courage purposefully limits the freedom of action, thereby altering the beliefs and actions of others in a direction favourable to the decision maker.
Samaritans dilemma is applicable to the Zambia’s budgeting process through budget support by donors. A practical example of the Samaritan’s dilemma is of Food Relief to Zambia. In the past years, Zambia faced undesirable rain patterns thereby causing food shortages. This situation was rescued by donors through various programs of funding and relief food. The Zambian government had to make a choice whether to depend on relief food while improving future farming productivity or depend on relief food and do nothing about the situation. The Zambian government chose the former (acted strategically) and earned support from donors through Budget support programs.
2.4 BUDGET SUPPORT IN ZAMBIA AND THE TRANSITION INTO A MIDDLE INCOME COUNTRY
Zambia is a peaceful, democratic country with enormous economic potential, now grounded in its rich endowment of natural resources. With good economic management and several years of strong economic growth, Zambia has turned around its image as a country performing below its potential. In sharp contrast with the 1991-1998 periods, the country has recorded positive GDP growth for the last nine consecutive years, led in particular by the mining, construction and services sectors.
However, the country needs to grow faster than its current rate of 6 percent per year in order to achieve the Millennium Development Goals and the national vision of becoming a middle income economy by the year 2030. In addition, the growth needs to be diversified, as continued dependence on copper creates risks and is unlikely to generate the jobs and income levels needed to achieve its goals. Reaching and sustaining growth at between 8 and 10 percent will depend on Zambia’s ability to become globally competitive and integrated with the regional global economy. At the moment, Zambia ranks 117th out of 128 countries included in the 2007 Global Competitiveness Index. Moreover, despite efforts to ensure macroeconomic stability and diversify the economy, rural areas have suffered from years of development neglect.
Underlying the slow pace of development is a chronic lack of investment in public infrastructure and services—both hard (roads, energy, information and communication technologies) and soft (skills, health, markets)—and the poor investment climate, resulting from the slow pace of implementing much needed structural reforms.
The World Bank is one of nine cooperating partners providing direct budget support to the Government of Zambia. Budget support contributes towards the funding of government’s Poverty Reduction Strategy as reflected in the Fifth National Development Plan.
Since 2005, the Bank has provided two budget support credits worth US$50 million. Under the first budget support credit, the World Bank supported government reforms in the following areas: preparation of the Financial Sector Development Plan (FSDP), the sale of the Zambia National Commercial Bank (ZNCB) and reform programs in the civil service pension system. Under the second budget support credit, the Bank is supporting the government in the areas of public sector reform, pension reform and macro-economic management, particularly the creation of a credit reference bureau. The Bank is also helping in the preparation of legislation on agricultural marketing, strengthening government capacity and reducing the cost of doing business.
2.5 OVERVIEW OF SAMARITAN’S DILEMMA
The Samaritan’s Dilemma (Buchanan, 1975) has been used in a number of instances to identify disincentives generated in charity situations and in unconditional government welfare schemes. Many examples of Samaritan’s Dilemma can be culled from development agencies’ experiences. Fisher (2001:74) talks about how farmers receiving food aid in southern Sudan stopped farming and participating in income-generating activities because they had a guarantee of food transfers from the United Nations. Maren (1997) argues that the supply driven aid to Somalia in the 1980s led directly to famine in the 1990s. Eriksson
(2000) cites a number of instances where soft budget constraints occur when kind hearted government officials repeatedly bail out state-owned enterprises, which then proceed to continue spending more than their budgets. In their desire to help however, the Samaritan-agencies have, on a number of occasions produced poor, and sometimes catastrophic outcomes.
Buchanan (1975) first introduced the term Samaritan’s Dilemma to show that altruism induces recipients to exhibit adverse behavior in the absence of strategic behavior from the donor side. Building on Buchanan’s work, a number of authors have emphasized the idea that in a setting characterized by altruistic transfers, potential recipients may behave in a socially inefficient manner in an attempt to manipulate the magnitude of these transfers (Bruce and Waldman, 1991: 1345). In the context of aid, the Samaritan’s Dilemma makes predictions about a two-way relation: Donors will disburse foreign aid according to the expected needs of the poor, in turn adversely affecting the recipients’ incentives to carry out policies that would reduce poverty. Unless concerted efforts are made to change this, this cycle will continue to perpetuate itself.
The ‘adverse behavior’ exhibited by a recipient country refers to the consequences of institutional destruction: rent-seeking, crowding out of investment, moral hazard, etc. On the agency side, Buchanan finds that altruists (Samaritan’s) place greater emphasis on maximizing short-term utility as opposed to prioritizing long term utility gains (1975: 83). As such, the altruist simply focuses on transferring charity to the recipient, instead of realizing what could make this relationship more fruitful in the long run. Thus, the Samaritan does not have the foresight to institute regulatory mechanisms in the form of ‘credible threats’ or carefully constructed transfer rules that do not yield perverse incentives. Credible threats in this case suggest a tightening of conditions surrounding aid transfers, or even the possibility of ceasing aid transfers. Transfer policies refer to the Samaritan’s motivations for transferring funds in the first place, as well as the methods employed in transferring those resources. Perozek’s(2005) study of intergenerational transfers between parents helps illustrate the importance of transfer rules; if a child understands the altruistic transfer rule, he will behave so that the probability of becoming impoverished is higher. This is done in to receive a greater amount from his parent. This problem also arises because altruistic parents cannot credibly condition future transfers on the behavior of the child. This analogy holds quite well for the agency-recipient interactions in an aid dependent setting.
2.6 CONCLUSION
Zambia has had a long period of political stability. With strong growth in the last decade the country has reached lower middle income status. Investor confidence has been high as evidenced in the successful issue of two Euro bonds.
Zambia has had a decade of rapid economic growth. A combination of prudent macroeconomic management, market liberalization policies, and steep increase in copper prices helped drive investments in the copper industry and related infrastructure to achieve an average annual growth of about 6.4% during the last decade. Though the economy is dependent on copper, the agriculture sector is the major employer (70% of the population). However, the sector’s potential to contribute to the country’s development remains largely underexploited.
The country has defined its own development agenda through its Vision 2030 and the Sixth National Development Plan (SNDP) which has recently been revised. The Plan is organized around the theme of “broad based wealth and job creation through citizenry participation and technological advancement.” Specific development goals include promoting inclusive growth, fostering a competitive and outward-oriented economy, significantly reducing hunger and poverty, and reaching middle income status.
Accelerating growth and reducing poverty will necessitate increasing the competitiveness of the Zambian economy by reducing the cost of doing business and ensuring that the rural economy, upon which much of the population depends for its livelihood, contributes meaningfully to overall growth. Despite vast potential and stated commitments to diversification, the mining sector continues to dominate the economy.
REFERENCES
- 1. James M. Buchanan, “The Samaritan’s Dilemma.”
- [5] Bruce, N. and Waldman, M. “The Rotten Kid Theorem Meets the Samaritan’s
- Dilemma,” The Quarterly Journal of Economics, 1990, vol. 105, pp. 155-165.
- [6] Bruce, N. and Waldman, M. “Transfers in Kind: Why They Can be Efficient and
- Nonpaternalistic,” The American Economic Review, 1991, vol. 81, no. 5, pp. 1345-1351.
- Maria Perozek, 2005,Escaping the Samaritan’s Dilemma: Implications of a Dynamic Model of
Altruistic
- The Road to Hell: The Ravaging Effects of Foreign Aid International Charity. by Michael Maren.
