How can the aid system be overhauled?

Two interesting new articles start with the premise that the aid system needs to be overhauled, and then reach radically different conclusions about what this means in practice.

First up, Roger Riddell says we need a radical rethink of foreign aid:

The gap between what it does and what it could do is widening fast. … The central problem of the aid system is that there is no system.  … Almost since official aid was first given, politicians have both warned of aid’s systemic problems and proposed alternatives. These include raising aid funds through an automatic compulsory mechanism based on the ability to pay; pooling aid resources and allocating them on the basis of need; and, if there are grounds for believing that the recipient government is unable or unwilling to use the aid funds transparently, “ring-fencing” the aid in a fund to be administered independently.

Most of these good ideas have been eclipsed by the focus on increasing aid levels. A common response to anyone advocating these solutions to aid’s systemic problems is the counter-argument that they are part of the very nature of the aid system, and that it is naive to suggest that it can be changed. They warn that if governments are unable to decide for themselves how to give aid and then check on its use, then they simply won’t provide it.

There are two ways to respond to these arguments. One is to point out that that aid’s systemic problems are getting worse and fast and frustrating progress on the core objective of ending extreme poverty. Resolving key systemic problems would probably have a greater effect on extreme poverty than expanding the amount of aid given. The other is to draw attention to high-level discussions where the sorts of changes needed to fix aid are being presented as politically viable.

The authors of Philanthrocapitalism, Mike Green and Matt Bishop, also think that the aid system needs reform, but they have a very different view of the direction of travel:

Like it or not, we have to find new ways of making the aid money go further and find new ways of financing development that do not depend on the political will of a few rich countries. Philanthrocapitalism, by tapping the expertise, creativity, money and other resources of the private sector, has to be central to a new development strategy. First, to pilot and test ideas to make aid smarter and more effective. Second, to leverage more private capital – full for-profit, ethical investment and donations – to fill the gap.

As we have argued before, this means thinking about aid not as the exclusive preserve of government but as a partnership with philanthrocapitalists, rich and less rich alike. This challenge is urgent and the rich countries are being slow to take it up – Britain’s new government, in particular, seems set on business as usual (although there are plenty of disgruntled voices on the right who would like to see an axe taken to the aid budget).

Both arguments start from the view that the challenges to aid are the result of political pressures in donor countries.  Roger Riddell argues for a more centralised, technocratic aid system which can be isolated from undue political influences.  Mike and Matt want to see much greater involvement from a range of other actors, especially the big philanthropic foundations.

I think they are both partly right, and both partly wrong.

Roger Riddell is right to say that the systemic problems of aid are the result of politics; and he is right to disagree with the pessimistic idea that these problems are insurmountable.  But he wants to address these problems but putting the aid system at arm’s length.  I don’t think this is a viable solution: it wishes the problem away.  It is like saying that we can solve the global climate change problem by handing over control of energy policy to an international panel of wise people.  The politics matters, and we can’t make them go away by asking technicians to give us the answer; so we have to figure out how to change the politics.

The aid system today is characterised by aid institutions (official aid agencies, international organisations and charities) trying to mediate between the preferences of the people who give them money and their view of the interests of people in developing countries.  Aid agency staff typically want to do as much as they can for people in developing countries: if you ask most aid agency staff who their “client” is, they will tell you it is the world’s poor, not their own taxpayer. But they feel they can’t do many of the things they would like to do (such as improve the allocation of aid, reduce conditionality, make long-term commitments, scale back paperwork and process, focus more sharply, untie aid etc) because they have to take account of the preferences of the people whose money they are spending.  They see themselves as a firewall, serving the interests of the poor by protecting the aid programme as best they can from what they consider ill-informed or selfish wishes of their taxpayers. This behaviour is not confined to official donor agencies: many NGOs say one thing to their supporters, and do something quite different (think, for example, of the difference between what Kiva actually does and what most people think that it does).   In my view, trying to deliver effective aid despite public opinion  is fundamentally misconceived and unsustainable; this model is beginning to fray at the edges, and could well fall apart.

The alternative approach is for aid agencies to recognize that the public wants to see aid used as effectively as possible; and to build an informed conversation about how that can be achieved.  The stakeholders see the issues from different perspectives: for example, the public sees the benefits of spreading its aid across many countries and sectors, while aid agency staff see the ineffective duplication this creates.  The solution to this is to share information and build a common view, not to try to disempower the public.  If the aid bureaucracies believe that long-term commitments of aid to strengthen national systems is more effective in the long run than the series of smaller ad hoc projects that the public seems to prefer, then they should  produce the analysis and evidence and persuade their stakeholders.   Both Roger and I believe that more aid should be given to the poorest countries; he believes that this decision should be taken out of the political process, while I believe we have to win the public round by explaining why that would be better.

In the long run, public opinion will determine how much aid is given, to whom, and by what means: we cannot and should not try to sidestep the argument by putting the administration of aid beyond the reach of public opinion.  The only sustainable way to make aid more effective is to change the political pressures by producing persuasive evidence and analysis.   If Roger’s approach is to insulate aid from political pressure, my approach would be work to align those political pressures with more effective aid by making aid more transparent and accountable.

By contrast, Mike Green and Matt Bishop want to improve aid, and attract more resources, by making more use of the expertise and money of the private sector.  I agree with them that there is huge potential for the growing diversity in the aid system to improve the effectiveness of development system, if different organisations focus on the contributions that they can make.  Foundations could act like venture capitalists: taking bigger risks but leaving long-term financing of scaled up successes to official aid donors. Private aid could focus on achieving community and individual level results. Specialised global organizations could provide particular expertise not available through generalist support. The diversity of official donors could provide innovation rather than a monoculture of ideas. Official aid agencies could focus on long term funding and resource transfer, and support for institutional change.

Unfortunately it is not clear that all these different actors really are focusing on their strengths, and there is nothing in the aid system that pushes them to do so.  The foundations do not display the higher risk appetite that we would expect them to have (despite their rhetoric).  The approach of official aid agencies to the division of labour does not appear to be intended to drive specialisation (from which the benefit of division of labour derives) but simply to limit spread.   Diversity of approaches and innovation are essential, but this must be accompanied by mechanisms which kill off bad innovations and take good ideas to scale; otherwise the effect is simply to add to costs and fragment systems.

In their book, Philanthrocapitalism, Mike Green and Matt Bishop give several examples in which philanthropic foundations have made significant and worthwhile contributions. The role of the Rockefeller Foundation in promoting the Green Revolution is a compelling example.  But from these successes they extrapolate a wildly rose-tinted view of the work of foundations.  As with official aid, there are successes and failures; there are good practices and bad.

My impression is that, at their worst, foundations are much less effective, and behave even worse than official donors.  For example, I have seen:

  • massive unpredictability and volatility of foundation grants; many foundations make grants worth 5% of their capital asset value each year, which is the minimum imposed on them by US tax authorities.   In years when asset prices are volatile, many foundations pass on this volatility to grantees – they do not (as they could, if they chose) use their capital to smooth out the grant-giving and make it more predictable and stable.  In 2009 I know of some foundations which imposed in-year cuts exceeding 25% on their grantees, leading to cuts in services and imposing huge costs in developing countries just at the time when the world economic crisis created needs for additional funding;
  • reinventing the wheel and failure to learn – it is one of the advantages of foundations that they can be innovative and unconventional; unfortunately, both the benefactors and staff of many foundations suffer from an inflated sense of their own abilities, and foundations often repeat basic mistakes that have been made for many years, rather than building on the experience and wisdom of organisations that have made these mistakes before;
  • capriciousness and personality-driven priorities – both the staff and benefactors of foundations get ideas into their heads from which they cannot be dissuaded.  There are many examples of ludicrous decisions and instructions from foundation staff to grantees based on nothing more than their prejudices or personal preferences.

Of course, official aid agencies also suffer from these problems to some extent.  But they also benefit from a degree of public accountability which puts them under pressure to be more effective.  I think Matt Bishop and Mike Green underestimate the problems that foundations suffer as a result of their lack of accountability.  In many cases benefactors became rich in markets; and they often trusted their instincts. But when they got a judgement wrong they were soon punished by the market, and they were able to change course.  Now that they are philanthropists, they do not have any such feedback.  When they make the wrong decision, everyone is too afraid to tell them, for fear of losing the opportunity to apply for the next grant.  There is no mechanism for identifying and rewarding their most effective staff; nothing that forces foundations to concentrate on what they are really good at.

In many ways we have the worst of all worlds: with some notable exceptions, foundations do not in practice take enough advantage of the opportunities that their lack of accountability give them (for example, taking bigger risks, or supporting unpopular causes) but they do suffer from the weaknesses that lack of accountability imposes on them.

So I think Mike and Matt are right to say that development relationships should not be the exclusive preserve of government, and that is should increasingly be an effective partnership with philanthrocapitalists, NGOs, private sector organisations and individuals.  But without some more effective governance arrangements in the aid system, we will not reap the potential benefits of this partnership.  We need stronger pressures for the different partners to make their specific contributions effectively, which in turn demands greater transparency and stronger accountability for all organisations.

Both articles start from the premise that the aid system needs to be improved; on this I think we all agree.  But Roger’s solution – putting aid beyond politics – is unlikely to be effective, and is undemocratic.  If we believe that politics constrains effective aid decisions, we should square up to trying to change the politics, not trying to insulate ourselves from it.  And Mike and Matt’s answer – passing the baton to very rich Americans – is no answer either.  These stakeholders certainly have a contribution to make, but to be effective their contribution must be part of a system that is likely to get the best from all partners working together, and holds everyone to account; otherwise we risk having all the disadvantages of the free market with none of the benefits of market discipline.

Disclosure: the organisation for which I work receives grants from the Gates Foundation and Hewlett Foundation.

7 thoughts on “How can the aid system be overhauled?”

  1. As usual, a very interesting blog, with a whole reform programme in it.

    I think the development world should eat its own ” good governance” dog food. Once the objectives are decided by political process, there sould be a transparant process to select the most competent partners.

    It is definitely the role of politics to make the fundamental choices. How much money should we give for child protection compared to what we give for child survival? This is a fundamental political choice how we want to run our society, which cannot be outsourced to technocrats.

    However, assigning money to projects, partners, consultants, should not be based on the political process. The political objectives should be translated in transparant spending decisions, with criteria on results and competition according to set criteria. Partners should be selected on basis of the expected and agreed results and not on basis of some politically decided entitilement, inclusiveness or sole sourcing.

    Owen replies – Yep, that’s pretty much exactly my view too.

  2. I work for a large bilateral donor in South Asia. At a recent retreat we invited three major foundations to come and tell us how they do it. The most striking thing was – on the inside – how much they looked like us – the bigger and more ambitious that they got, the more they were tied up with internal administration. It seems that it is hard to spend lots of money on development without quite a lot of paperwork. I agree with your critical weaknesses of foundations – in examining what they do in South Asia, another suprise for me was that many are smaller – in terms of total funds and number of grants – than is generally believed. With a few notable exceptions, bark was bigger than bite.

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  4. My blog, explores the skills and knowledge needed by all international “do-gooders” to truly raise the level of human dignity within international assistance and to put real resources behind local means of overcoming obstacles. From my perspective, it’s not about what we do, but HOW we do it. is an expression of the my professional, but more importantly, a personal resolve to nurture alternative models of foreign assistance that genuinely build on the dignity, knowledge, skills, culture, and abilities of local people. I have over ten years of experience and a deep, deep affinity for supporting grassroots initiatives and women’s groups in the global south to be strong forces for social change and poverty reduction at the community level. I believe that when we talk about overhauling the aid system, it must be in service to these efforts of real people on the ground.

    A mapping exercise sponsored by UNICEF identified over 1,800 community-based organizations focused on orphans and vulnerable children in Malawi alone (Network of Organizations working with Vulnerable and Orphaned Children in Malawi, 2005). Most were linked to local churches, schools, or clinics or were independent groups that assist children by extending support and services into areas that are not reached by government or international agencies.

    So it’s time to abandon the “expertise infusion” model of development. Rather than the community-based groups needing to change, it’s the NGOs and donors that need to require power asymmetries to be part of their staff’s consciousness in a more comprehensive and meaningful way. It’s the donors and NGOs who need to restructure and revise their accountability requirements to focus on the minimum structure and financial controls necessary, in order to lower the “glass ceiling” for wider numbers of community-based organizations to benefit from the resources.

    We have to ask—what is the cost to all of us when so many of the best minds and perspectives from the community-level are left out of navigating the paradox of development? This is where we clearly need all the help we can get.

    Humility is needed to acknowledge the vision, structure, and impact that grassroots groups do have. Clearly these under-recognized and under-resourced folks have knowledge and expertise could be invaluable to addressing the most pressing problems of this century.

  5. I think that this sounds like a great approach to self help, but hard to justify when spending large quantities of other countries’ citizen’s taxes on development. Community based organisations may be inherently worthy according to their own individual terms and definitions, but this does not mean that they deserve to receive external support. Aid, like most (all?) public policy, involves a reasonable degree of standardisation, generalisation, and reduction. Did none of the clinics and schools in Malawi receive support from government or external agencies?

  6. In working with large corporate aid agencies over the years, I continually experienced the severe limitations of large-scale, donor-controlled, project-based funding, recognizing the profound need for community-driven development initiatives that were genuinely responsive to local needs rather than cooked by policy wonks in capital cities. I’ve also had the unique privilege to experience the impact and potential of alternative mechanisms that directly support community groups and that, for me, highlight the way forward for our sector.

    I think to truly bring about people’s improved well-being, efforts are needed (and worthy of financial support) at all levels. One suggestion – organizations and/or programs could devote a certain percentage of their budget to administering small “responsive” grantmaking mechanisms. This would not be tied to any specific sectoral activities, e.g. health or agriculture, but would rather be a pot of money to address priorities identified by a wide number of community leaders. Though now largely discontinued, the former large aid agency I used to work for had this as a part of each of its country programs. Grants were US$500 or less, had an open application process, needed two positive independent references, and required only one-page proposals and reports.) Many colleagues talk about these small bits of money as some of the most memorable, impactful and fun(!) projects they ever supported. The relative risk of “losing” US$500 was nothing when compared to the waste within the system when you think about each layer taking its cut before funds ever reach the ground. But more importantly, they were easier and less costly to administer. Wouldn’t any taxpayer be pleased with that?

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