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War in the real world, as we have already seen, is not an extreme thing which expends itself at one single discharge, it is the operation of powers which do not develop themselves completely in the same manner and in the same measure, but which at one time expand sufficiently to overcome the resistance opposed by inertia or friction, while at another they are too weak to produce an effect, it is therefore, in a certain measure, a pulsation of violent force more or less vehement, consequently making its discharges and exhausting its powers more or less quickly in other words, conducting more or less quickly to the aim, but always lasting long enough to admit being exerted on its course, so as to give it this or that direction, in short, to be subject to the will of a guiding intelligence.

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slumps. Today, these two institutions dominate aid to developing countries. Other agencies toil in their shadow, like it or not. For the World Bank, we have a recent report by a former Bank economist: The Elusive Quest for Growth, by William Easterly. He notes the economic theory that rules World Bank lending: External aid leads to internal investment leads to economic growth. Then he tests this theory against actual results in 138 developing countries. He finds that the theory holds for just one country:12

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Tunisia. Before Tunisians throw a national celebration, I should point out that 1 success out of 138 is likely to have occurred by chance.

Electric Release Latch Strikes Circuitry Electric Door Openers Electrified Mortise Locks Electrified Knob Locks Electromagnetic Locks Electrical Keyless Locks Key-Actuated Switches

So investment is not the answer, even when you include a hefty investment in education:

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What has been the response of economic growth to the educational explosion Alas, the answer is: little or none.

As with the electrical system, the major portion of the plumbing system is concealed behind the walls and below the floors. Nevertheless, the part of the plumbing system that is accessible for inspection permits you to make a meaningful evaluation of its condition. A basic plumbing system consists of a watersupply source, distribution piping, fixtures, drainage piping, and a waste-disposal system. Figure 13-1 shows the layout of a plumbing system for a typical one-family, two-story house.

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Education is of little value without economic opportunities that put that education to use. That means that education can accelerate growth, but it can t start it. So what is the answer Policy. It s not how much you invest, but how you invest. With the wrong policies, the investment is wasted. With the right policies, the investment pays off. But even here, the World Bank and other agencies have erred: To try to create the right incentives, international institutions started making loans conditional on policy reforms. So what happened The countries promised to introduce reforms and took the loans. Then either they failed to implement the reforms or the reforms themselves failed. Easterly has a solution: to tie aid to past country performance, not promises, giving the country s government an incentive to pursue growth-creating policies. On the one hand, this has a what works appeal: If a country s policies have worked, we lend it the money to keep going. On the other hand, what policies should a country try in the first

place We can t just punish the poor performers by cutting off their loans. We also have to offer them policies that will help them succeed in the future. So we ask: What policies help create growth To answer this question, Easterly looks for positive examples. He tells one story in detail, that of the textile industry in Bangladesh. As of 1979, there were only 40 workers in the whole textile sector. In that year, a former government official named Quader allied his textile company, Desh Garments, with Daewoo Corporation of South Korea. Daewoo brought 130 Desh workers to its plant in Pusan to learn the trade, in return for a share of Desh s future revenue. But something happened:

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Of the 130 Desh workers trained by Daewoo, 115 of them left Desh during the 1980s to set up their own garment export firms. . . . The explosion of garment companies started by ex-Desh workers brought Bangladesh its $2 billion in garment sales today.

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