Owen abroad

Archive for the ‘Aid effectiveness’ Category

On the CGD blog, Nancy Birdsall proposes “Ten Actionable Ideas … for a 21st-Century Global Development Agenda”

What are examples – some realized and some on the table but untested – for practical action in the interests of global prosperity? Where do good ideas come from? How do they get translated into action?

Nancy’s ten:

1. More AMCs for vaccines and green technology
2. Protect some aid from security and political objectives
3. Independent evaluation agency
4. More representative G-20
5. Visas for people from poor countries
6. Duty free, quote free access to all markets
7. Per capita distribution of net income from non-renewables
8. Reform of selection of heads of international agencies
9. World Bank to have a global public good window
10. Petrol tax in the US

Ever fizzing with ideas, Nancy throws in a few others: endow think tanks in low-income countries; increase capital at development banks; Climate Investment Funds to bring private investment money;  Cash On Delivery Aid; new insurance and risk management instruments at the multilateral development banks.

Well I agree with all those, of course (and not just because I’m a visiting Fellow at CGD!).   She asks for other suggestions.  Here are my ten:

1. Global standards for transparency and traceability of all aid to increase accountability and effectiveness
2. Climate justice – every person in the world to have equal, tradeable, carbon emission rights, capped overall at the level scientists tell us is safe
3. Global information sharing among tax authorities to prevent tax evasion
4. Unbundling of aid funding from aid delivery, complete untying and global standardised output and outcome indicators to enable cost comparisons
5. A global minimum income guarantee backed by cash payments to the world’s poorest people
6. Product traceability from sweatshop to supermarket using barcodes
7. A complete ban on exports of small arms
8. A standing, professional  UN peacekeeping force to be deployed by a reformed Security Council
9. Reform of intellectual property to permit free access in the lowest value markets
10. Increasing the share of aid to LDCs from 38% of global aid today to 90% by 2012.

Update 25 February: On Twitter, Nancy Birdsall (@nancymbirdsall) says: “@OwenBarder has 3 more actionable ideas (and 7 dreamy ones)”.  This is a good game: which of these does Nancy think are actionable and which are dreamy?  My guess is she thinks (1), (3) and (9) are actionable and the rest dreamy.   But what do you think?

I think they are all realistic – but then I’m with John Lennon: “You may say that I’m a dreamer, but I’m not the only one. I hope some day you’ll join us, and the wo-o-rld will live as one”.

Emmanuel Frot and Javier Santiso write about why fragmentation is a problem for international aid:

.. the real issue at the heart of fragmentation is too little competition. Numerous donors only multiply monopoly costs, without bringing the benefits expected from competition.

This has implications for how the donor community tackles fragmentation. The current approach is institution-based. Donors and recipients meet in international meetings, and pledge to act. Progress is monitored by a multilateral institution (OECD’s Development Assessment Committee) that cannot constrain donors to implement their pledges, except through a delicate game of naming and shaming.

We wonder about the efficiency of this approach. To deal with a too heavy administrative weight by creating new administrations is somehow ironic. It remains to be proven that these new institutions will lower transaction costs and manage to implement a labour division that donors are often reluctant to effectively achieve. The problem with this approach is that it basically ignores why aid is fragmented. It does not attempt to change the incentives donors and recipients face, and so is unlikely to radically change their behaviours. In particular, it disregards the lack of competition that creates fragmentation.

I think this is exactly right. Fragmentation is a good example of a more general problem, which is that there are insufficient forces within the aid system to force it to evolve towards better arrangements. Evolution requires both variation and selection, and while fragmentation may be conducive to more variation, there are no forces that then drive out the bad and expand the good.

Jeff Marlow writes in the New York Times about Koraro, a Millennium Village Project village in Northern Ethiopia:

As the project’s first five years wind down, its ultimate goals remain elusive, and the five-year initiative has swelled to 10. The extension, naturally, will require more spending: The financial injections to date—over $5 million per year in a mix of cash and non-cash contributions—have not abolished poverty. Improvements in the five sectors targeted by the MVP are readily apparent, but their sustainability is still up in the air.

There are many people in the development set who are sceptical about the utility of the Millennium Village Project, for good reasons and for bad.  Village-level interventions have had a chequered past, and the conventional wisdom today is that development assistance should help to build capable and accountable states which can deliver services, from agriculture and education to security and health, and not provide these separately from the systems that are being established.

I don’t know as much about Koraro as Jeff, but G and I did visit the town, unannounced, one day when we happened to be driving past.  We struck up a conversation with a local shopkeeper which went like this:

O&G:                 What is it like being a Millennium Village?

Shopkeeper:    Very good. We have lots of things.

O&G:                 Does everything work well?

Shopkeeper:    No, not all of it.  But we are much better off now.

O&G:                 Who decides what to change? Do you have a village council, or is there an Elder who decides?

Shopkeeper:   It is all decided by a Professor in New York.

O&G:                 Really? Do you know his name?

Shopkeeper:   No. But he is a very famous man

I don’t have the same ideological objections to Potemkin Villages the Millennium Villages Project as some other people. As both Jeff Sachs and Nick Stern have arged, it seems plausible that there may be significant complementarities between interventions which mean that programmes work better if there are other successful programmes at the same time.  For example, there may be little value in increasing agricultural productivity to generate surpluses if there is no way to get those surpluses to market, which requires infrastructure.  That suggests that each community may need a big heave:  ensuring that all these things come in together may be more effective than a series of uncoordinated interventions spread thinly.

For me the most disappointing aspect of the Millennium Villages Project has been the steadfast refusal to subject it to rigorous evaluation.  (Their evaluation programme is described here.)  The most detailed study so far has been conducted by the Overseas Develoment Institute.  The problem is lack of a proper basis of comparison.  Ethiopia is changing quite rapidly, and Korkora would have changed with or without the Millennium Village Project. For example, there has been a 51 percent reduction in malaria cases in Koraro, Ethiopia. This has been touted as a success by the supporters of the project; and it sounds impressive until you find out that malaria cases have been more than halved across the whole country, not just in Koraro.  The improvement in the Millennium Village is apparently no greater than anywhere else in the country.

To evaluate the project, Millennium Villages need to be compared with some suitable control group, ideally through randomised controlled trials.   Ideally, the individual components of the project would also be randomised to test the hypothesis that the effects of interventions are complementary.  (It follows that I don’t agree with Chris Blattman’s view that it would be too hard.)

It would, as Chris says, be pretty surprising if the Millennium Villages Project does not make a difference. After all, it is spending money roughly equivalent to 100% of the villagers’ income. Furthermore, it has benefited from close personal attention from the Prime Minister, other ministers and officials, researchers and academics (and, of course, a famous Professor from New York).  A rigorous evaluation would help us to know how big that improvement is, and and what cost.  It might also give us insights into whether any particular parts of the progamme are particularly important.

Lindsay Morgan describes the problem of unpredictable aid:

And although more aid, even disbursed on short notice, might seem like a good thing, it’s difficult for governments to spend on useful things when they can’t predict what next year’s aid will amount to. For example, governments can’t hire teachers with a boost in aid this year, when they don’t know if they will have money to pay them next year.

I am grateful to Oxfam’s Duncan Green for his fair and thoughtful review of my paper about improving aid, Beyond Planning: Markets and Networks for Better Aid.

I’m glad that Duncan and Chris, his Oxfam colleague,  endorse a key argument of the paper, which is that the development industry will improve through evolutionary change rather than grand design; and that a driver of this change will be better mechanisms feedback from the citizens of developing countries about what is working. The paper points out that this kind of evolutionary change comes from variation and selection – and that the aid business does not have enough of either to ensure evolution towards more effective aid.

Duncan and Chris  have reservations about the word “beneficiary” to describe the people in developing countries whom aid is intended to support.  I think that is a good point, and I’d be happy to use a different word if we can find a suitable alternative (I don’t think that “primary stakeholder” or “rights holder” takes the trick, since neither is sufficiently specific about who we mean).

I don’t want to put words in Duncan’s mouth, but I detect from his review that he is more sceptical than me about the value of markets. He dismisses without much fanfare the  the idea of giving more choice to the, er, “intended beneficiaries” (aka primary stakeholders and rights-holders):

Where I think he is wrong is a largely market based philosophy for creating incentives based on New Public Management theories of expanding choice more than voice. … This in turn requires some quite fundamental organisational change with in aid agencies, as well as establishing more citizen to citizen links possibly using new social media.’

That is an unfair characterisation of my view: I am in favour of choice AND voice.  A large part of the paper, especially when talking about networks, is precisely about how citizens can have more voice, and I talk explicitly about citizens links through new social media.  But there are huge problems to overcome in achieving this, because the “intended beneficiaries” are geographically and politically remote from decision-makers in aid agencies, which means their voice is dimly heard, if at all.

While I agree with Duncan on the need to ensure that people have voice, I find it surprising that he (in common with many people who regard themselves as progressive) is so reluctant to give choice where possible as well.   Duncan’s (excellent) book is called From Poverty To Power – and I believe that giving people direct control of resources and allowing them to choose what services they want, and from whom, can be one of the most important ways of empowering people.  Duncan calls this a “technocratic/new labour enthusiasm for using market mechanisms” – but the idea of giving the poor more direct control of resources goes back long before New Labour:  Oxfam’s honorary President, Amartya Sen, got a Nobel prize for his 1982 book, Poverty and Famines: An Essay on Entitlement and Deprivation, which argued that it would be better to give people money than food in a famine.

I have not swallowed the New Public Management story hook, line and sinker, but I do believe that there have been positive experiences (for example, from the publication of league tables, and the distinction between purchaser and provider).  While I think we should learn from new public management, my paper describes in some detail the shortcomings of a market-only approach, especially as it relates to foreign assistance.  I hoped my paper would be an elegant synthesis of some of the best (and proven) tools of this school of thought with lessons from other approaches, especially the use of complementary mechanisms of networks, voice, regulation and planning.

The aid industry has almost entirely evaded the reform of public services over the last decade.   There is no measurement of results; no distinction between purchaser and provider; no customer choice.  Presumably the lack of reform is partly because the shortcomings of the industry are felt by people with no political power or voice in the political systems of donor countries. The incumbent service providers are politically powerful, well organised, and deeply conservative about any change that affects their interests.  The aid system has, over time, drawn to it people who are sceptical about the value of markets and choice, saddling developing countries instead with five year plans and long coordination meetings.  No politician in a donor country is enthusiastic to take on these vested interests, in order to improve services for people they will never meet and who have no vote in the election.

In Business Day, Adekeye Adebajo, the executive director of the Centre for Conflict Resolution, Cape Town, takes the gloves off in criticising Dambisa Moyo’s book, Dead Aid:

… This is a work of self-flagellating simplicity, totally devoid of any thinking by leading African research centres or scholars, making the book often read like a Harvard Masters syllabus or a World Bank report. Moyo reveals her ignorance by incredibly charging that “scarcely does one see Africa’s … officials … offer an opinion on what should be done”. …

Moyo employs crude stereotypes of “tribal conflict” to depict African wars, and recklessly suggests that aid is “an underlying cause of social unrest, and possibly civil war”. Such an absurd link would, of course, involve a huge leap of logic, and the author’s ignorant blaming of Somalia’s civil war on competition for food aid completely ignores the decade-long homicidal campaign of US-backed autocrat, Siad Barre, which eventually led to rebellion in 1991.

Read the rest here.

My own review is here (pdf) – also critical, but less vituperative.

More reviews (including some which are less negative) of Dead Aid here.

The Center for Global Development is working on an idea which they call Cash on Delivery aid, in which donors make a binding commitment to developing country governments to provide aid according to the outputs that the government delivers. I think this is a good idea in principle, and hope that it can be tested to see whether and how it could work in practice.  The UK Conservative party have said in their Green Paper that if they are elected they will use Cash on Delivery to link aid to results.

Linking aid more closely to results is attractive from many different perspectives.  My own view is that linking aid directly to results will help to change the politics of aid for donors. Many of the most egregiously ineffective behaviours in aid are a direct result of donors’ (very proper) need to show to their taxpayers how money has been used.  Because traditional aid is not directly linked to results, donors end up focusing on inputs and micromanaging how aid is spent instead, with all the obvious consequences for transactions costs, poor alignment with developing countries systems and priorities and lack of harmonisation.  If we could link aid more directly to results, I think donors will be freed from many of the political pressures they currently face to deliver aid badly; and it would be politically easier to defend large increases in aid budgets.

Other people support Cash on Delivery aid for other reasons.  Ministers and officials of developing country governments see it as a way to access more money without the attendant costs of conditionality and foreign interference in domestic policy.  Some people see results-based aid as a way to restore the accountability of developing country governments to their own citizens, a social contract in which aid donors too often inadvertently interfere.  Especially in the US, some people believe that linking aid to results can create stronger incentives for developing country governments to deliver high quality public services.  Others support Cash on Delivery because it will improve the allocation of aid resources, since money flows to the places where services are being delivered and away from the places where money is being wasted. With all these complementary reasons there appears to be the possibility of a broad coalition of people in favour of moving ahead with testing whether Cash on Delivery aid can work in practice.

But there is one group of people for whom these ideas seem to be quite unsettling: development professionals in aid agencies and NGOs.

I recently wrote a response to a brief by CAFOD about some possible concerns about Cash on Delivery aid.  As I was doing so I realised that the questions asked by some development professionals reveal some discomfort about the possible impact of results-based aid on the quality and content of their jobs.  The “risks” identified in the CAFOD brief are not primarily about the consequences for development but rather risks to the privileged position enjoyed by professional staff in aid agencies and NGOs.

You can judge for yourself whether I am caricaturing the risks set out in the CAFOD paper, but they essentially amount to this: under Cash on Delivery aid money would flow to those governments best able to make use of it; governments would have freedom to decide which services to provide and to whom; governments would be able to decide how to use resources; governments would be accountable for their choices and the results; and progress would be measured according to internationally-agreed targets for impact rather than inputs and intermediate targets negotiated behind closed doors.

All these are necessary steps towards the internationally-agreed agenda for more effective aid set out in Paris and Accra, and necessary for the emergence of capable, accountable and responsive states.  Yet when a mechanism is proposed that tries to organise the aid system in a way that means these things could start to come about, these consequences are described as “risks”.

At the heart of these anxieties, it seems to me, is a question about what sectoral advisers in aid agencies are meant to be doing.  Take education advisers, for example (I am not picking on this group in particular, but it happens that the current proposals for Cash on Delivery aid are being developed looking specifically at education.)  Many people who work for aid agencies managing aid programmes for education are themselves education professionals, often former teachers.  Deep down (sometimes also on the surface) many of them want to be educators, not managers of aid programmes.  They want to be involved designing the curriculum, reforming the pedagogic approach, training the teachers, buying textbooks, or improving the education management information systems.  But it is the job of a community to educate its young, not foreigners.  As managers of aid programmes the staff of aid agencies should be ensuring that aid is delivered in ways that increase the accountability of central and local government to the nation’s citizens, keeping transactions costs to a minimum, delivering aid in ways which support the evolution of country systems and priorities, ensuring that the money is used for the purposes intended by the funders, and showing what results have been achieved.

In short, managers of aid programmes should be focusing on the effectiveness of aid, not education policy.  If governments need technical advice on education, they can procure that separately, and get advice from people who are more trained to build capacity and who are properly accountable for doing so, not get it as a bundled free offer-that-they-cannot-refuse from the people managing their aid.  If it works as intended, Cash on Delivery aid would change the relationship between donors and governments and would turn development professionals back into aid managers instead of would-be educators.  And it is this consequence which, I believe, some people find unsettling.

Many of my best friends are development professionals, and I know that everyone who works in development (well, nearly everyone) has the interests of the poor at heart. They often genuinely believe that they need to retain a degree of  influence to ensure that developing countries make the kind of progress towards development that they (and I) want to see.  There is quite a close parallel with the evolution of the attitudes of politicians, some of whom I also know well and have known since they were young, idealistic students.  Nearly all politicians enter politics for the noblest of motives: to contribute to the improvement of the society in which they live.  To a very large extent they retain those values through their political career. But over time there can be a gradual erosion of the distinction in their minds between their own interests and the service they give to others: some politicians gradually come to think that increasing their own power is the service of others, because they believe that they will exercise that power better than anyone else.

Politicians are, of course, at their most dangerous when they can no longer distinguish their own interests from the interests of the people they are meant to serve.  Similarly we should be concerned when we hear development professionals identifying themselves as speaking for the poor, and arguing that they must retain influence (i.e. power) – purchased by the relative wealth of their country – to promote strategies which the country would not pursue on its own.

To be fair, I also know some development advisers who are focused on improving the effectiveness of aid, who are rightly aghast when they are asked to double up by providing advice on how to manage an education or health system.   If I may be permitted a partisan aside, my observation is that DFID sectoral advisers tend to be more respectful of the need to promote effective country systems for policy-making and accountability than professionals from some other donor organisations (both NGOs and official aid agencies), and they are less likely to interfere in the country’s policies and strategies.

This may seem like an elaborate point to build from an innocuous and fairly sensible CAFOD brief about Cash on Delivery aid.  But the risks identified by CAFOD, and the questions that have been raised elsewhere, would apply to any system of results-based aid that makes substantive progress towards giving governments more freedom to choose how to deliver their development programmes and making them more accountable to their own citizens for their own success and failure.   I think these concerns actually reveal a deep-seated tension between the internationally-agreed agenda for improving aid effectiveness, and the views and interests of development professionals charged with designing and implementing those reforms in practice.

My article on OpenDemocracy today discusses whether aid works.

Some supporters of aid have made what seem to me to be extravagant claims that aid should aim to bring about economic and social transformation of developing countries, so accelerating economic growth and industrialisation.  But this is a very high bar to set.  Aid may well help to increase the probability of economic take-off but there are lots of other conditions that need to be in place for the transition to an industrialised market economy to happen, and aid is not a sufficient condition (nor, probably, a necessary condition) for it to occur.   Even if aid does play an important contributory role, it would be statistically very hard to demonstrate a link between aid and economic growth.

Although the effect of aid on economic growth is uncertain, there can be no doubt that aid makes a huge difference to people’s lives.  Aid provides food, health care, education, clean water, financial services, and modest incomes which transform the lives of the people who receive them.   You can see this both in individual families – like the girl I met in northern Amhara, pictured here, who has health care and education because of aid – and in the overall statistics, which show that there has been a vast improvement in the quality of life on almost every measure other than income.

Aid may not always transform societies, but it does enable people to live much better lives while those transformations are taking place.  And that represents a huge increase in the sum of human welfare.

I believe aid could and should work much better.  Living in a developing country, I see all kinds of waste and inefficiency in the aid system that makes me angry. But it makes me angry because I also see how much difference aid makes when it is used well.  I would like to see aid becoming much more transparent and accountable, so that it becomes subject to evolutionary pressures to improve.

This means, by the way, that I do not subscribe to the view that the aid system should be regarded as temporary.  In the UK we hope that people will be on unemployment benefit temporarily before they are able to get back to work, but we don’t expect the system as a whole to come to an end.  So I think that we should expect that at least for our lifetimes, it will be right and necessary that we transfer income from the richest people in the world to the poorest people in the world.  I do not know which countries will be rich, on average, in fifty years time, and which will be poor; but I expect that the world will still need, and I hope it will still have, a permanent system to help those temporarily in need wherever they happen to be.

Aid would work better in future if we accept that we will need a permanent system to provide temporary help to those who need it, and set about designing a better system to do that.

Read the full article here.

Related reading:

• Phil Vernon at openDemocracy (to which my article was a reply)
• Roger Riddell at openDemocracy
• Ranil at AidThoughts
• Chris Blattman – Could Aid Slow Growth

Aid budgets are limited by the amounts that rich countries are willing to allocate for foreign assistance.  There are limits to the generosity of parliaments, finance ministries and taxpayers.  At the same time, in developing countries there is not enough money to pay for everyone’s basic needs for food, water, shelter, health and education.

Because the total resources available are less than the needs, it is very important how they are used.  If poor decisions are made about the allocation of precious aid resources, the result can be additional suffering and death for millions of people.

This post why I think that attempts from outside to argue for aid to be earmarked for particular causes can lead to unnecessary deaths and suffering.  Aid works, but it could work better, and many sectoral advocates are not helping.

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A striking example is the amount of money donors earmark for spending on HIV and AIDS here in Ethiopia.

Government spending on health in Ethiopia comes to about $4 per person per year.  According to OECD/DAC data, foreign aid for health in 2007 added about $5.15 per person to the government’s resources, bringing the total of government and aid resources to about $9 – $10 per person per year. (As an aside: health spending per person per year in the UK is about $2,000 per person per year; in the US it is about $4,500.)

According to the World Health Organisation (WHO), in Ethiopia about 65% of the population (52 million people) live in areas at risk of malaria. Malaria is the leading cause of health problems, responsible for about 27% of deaths; and malaria epidemics are increasing. The HIV/AIDS prevalence rate among adults is 2.1% (2007) – that’s about 1.6 million people living with HIV.

Of $5.15 per head provided in aid for health to Ethiopia in 2007, about $3.18 per head was earmarked for HIV  while about $0.26 cents per head was allocated to malaria control.  Given the relatively low burden of HIV, earmarking 60% of health aid for HIV is excessive relative to other needs for health spending.

Of course it is right that we should try to make sure that everybody with HIV has access to medicines to keep them healthy, and we should work to prevent spread of the disease. But we should also make sure that people have bednets and drugs to stop malaria, provide childhood vaccination to prevent easily preventable diseases, ensure access to contraception and safe abortions, and, above all, enough funding to provide basic health services that would save thousands of lives and suffering.  Yet we are not willing to provide enough money to do all of this.  It is in this context that it is damaging to earmark 60% of health aid to HIV.

This excessive funding of HIV relative to other health needs is damaging in at least three ways.

First, aid money is not being spent in ways which would yield biggest impact. Take this analysis from the Open Budgets Blog:

Using these estimates, it would cost an additional US$29.7 million to treat all of the 540,000 kids who died from pneumonia/diarrhea in Nigeria and Ethiopia. Were this money to come out of the HIV budget, it would reduce the number of HIV patients that could be provided treatment by about 61,240. So, using these admittedly very rough estimates, our current allocation of resources from the pot of money for disease treatment suggests that we value the life of a person with HIV at 8.8 times the value of the life of a child with pneumonia.

Another way of looking at this is that reallocating resources from HIV to treating pneumonia and diarrhea in Ethiopia and Nigeria alone would have saved nearly half a million additional lives in one year.

Second, the misallocation of aid money sucks scarce resources (administrators, doctors, political attention) from other programmes which would have more impact. As Rakesh notes:

In Tanzania, I have seen any number of health centers which lack water and toilets, where women cannot deliver their babies safely, but which has a new building with 4 air conditioners and 2 Land Cruisers and weekly workshops on AIDS.

I wrote about this problem in 2007 after visiting a clinic in Burkina Faso which had been starved of medical workers by the recruitment drive by the local PEPFAR-funded clinic. And Laurie Garrett wrote in Foreign Affairs about the impact on basic health facilities of funding linked to specific diseases.

Third, the misallocation of aid money creates perverse, possibly lethal, incentives.  Here in Ethiopia the existence of huge amounts of aid money for AIDS chasing too few people with HIV means that there is a kind of welfare state emerging for people with HIV.  It is not perhaps the welfare state we see in many European countries, but it is much better resourced than is available for people without HIV.  As well as free health care, people living with HIV are supported to find work, and their children get free education.  NGOs fall over themselves to get people living with HIV and their families onto their lists.

The result is that some Ethiopians emerge from being told the results of their voluntary HIV tests in tears because they don’t have the disease and so do not qualify for this assistance. The quality of life for them and their families would be better if they did; and their life expectancy could well be higher, given the access to health services that would be unlocked.  There are even rumours here in Addis Ababa that some people are deliberately getting themselves infected, so that they can give their children a better start in life.

***

I have used the example of HIV because the misallocation is particularly egregious here in Ethiopia (as it is in some other countries in sub-Saharan Africa). But I do not want this to be misunderstood as an attack on AIDS activists, or on funding for HIV in particular.  Some of my best friends – indeed, some members of my family – are AIDS advocates and they are among the most committed and well intentioned development advocates.  If they had been listened to earlier, a great deal of suffering in sub-Saharan Africa and elsewhere could have been avoided; and the path to development would not have been so long and arduous for the countries most affected by AIDS.  These advocates are merely one group among many making the case (and earmarking funds) for their cause.

Look, for example, at this recent paper by ODI on education (funded by the Hewlett Foundation) which complains that while funding for basic education has grown in real terms it has not grown as a share of total aid. The paper is all about how education advocates can do more to “capture” the global stage and compete with health spending. (“Capture” is their word, not mine).  And I am not picking on education either.  There are endless demands from activists to commit more money to agriculture, microfinance, water, maternal mortality and a long list of other important issues.

The development industry seems to be riddled with people whose main job is to divert money  to their good cause.   The advocates are united by a strong belief in the priority that should be given to their sector (education, water, AIDS etc). They convince themselves that they are speaking for real interests of the poor, which they consider to be unaccountably neglected by everyone else. Within many aid agencies there is a permanent state of low intensity bureaucratic warfare for resources, sucking up the time and attention of staff as they fight to defend and expand funding for the causes they work on.  They deliberately stoke up pressure in private alliances with civil society organisations – many of whom they fund – to raise the political stakes through conferences, international declarations, and publications with the aim of committing funders to spend a larger share of aid resources on their issue.  Territory is captured and held by way of international commitments in summit communiques.  But for the aid budget as a whole these are zero sum games, and everyone would be better off – and many lives would be saved – if it stopped.

The advocates might defend themselves by saying that they are trying to bring more money into development, not to reallocate aid from one cause to another.  But as they know, or ought to know, that is not how development budgets work.  The UK commitment to spend $15 billion on education by 2015 does not advance by one day the path to UK aid reaching 0.7% of GDP.  Either the commitment is meaningless, because that much money would have been spent on education anyway; or it has resulted in a reallocation of aid within a fixed total to education from something else which would otherwise have been a higher priority.

The earmarking of funds within a fixed total takes money from one good cause and puts it into another. If the money moves to a lower priority, the result is additional suffering, more deaths, a longer journey to economic development, and the need to give more aid, for longer, than if choices were driven by locally-determined, well-informed, evidence-based decisions about needs and priorities.

Here in Ethiopia, the Minister for Health is very clear sighted and articulate about the health priorities for his country, and the need to allocate resources to building effective basic health systems.  Within the limited resources it is able to control, the Ethiopian health ministry makes intelligent decisions about priorities, understanding the variations within the country as well as between countries.  They have much more detailed and specific understanding of the issues that affect people here than well-meaning activists in Europe or America.  Furthermore, it is their country and their path to development, not ours.

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What do we need to do differently? I set out in a recent  CGD Working Paper the need to address the political economy of aid.

First, we should be much more rigorous and systematic about defining and measuring results from aid so that well-informed choices can be made.  There is a huge and expensive industry of “monitoring and evaluation”, most of the results of which is worth less than a pitcher of spit. We should dismantle it, and use a fraction of the money to fund a smaller, more sharply focused, more rigorous, international, independent collection of real evidence about the cost effectiveness of development interventions.  (Tentative steps in this direction are, of course, being fiercely resisted by the trade union of evaluators.)

Second, we should try to stop earmarking aid; we should make more use of results to demonstrate that aid is effective. The Paris and Accra agendas for aid effectiveness, which have been agreed by all the donor nations, require donors to respect the development priorities of aid recipients.  But there has been almost no change on the ground in this direction.  One step towards doing this is to put in place simple but rigorous ways to measure and attribute results, so that donors can be confident about  (and can explain to taxpayers) how their aid has been used.  If we cannot produce compelling evidence about what aid has achieved, it should be no surprise that ministers and taxpayers want to determine in advance how the money will be spent.

Third, we should stop creating global funds, and merge or close the ones we have got.  The existence of bureaucracies whose raison d’etre is to spend money in a particular sector or in a particular way creates incentives to promote resource misallocation because it protects jobs and institutional budgets.

Fourth, we must massively increase the transparency of past, present and future aid, so that informed decisions can be taken about how resources are allocated (not just between countries and sectors but within them).  Under current arrangements, donors publish details of their aid up to 23 months after it has been spent. Donors need to publish detailed information about their current and planned future activities so that governments, donors and the private sector can identify the gaps where additional resources would have most effect.

Fifth, we should, as a development community, heap scorn and opprobrium on anyone caught advocating for more resources in their sector.  We need stronger social norms in development that frown upon this kind of anti-social behaviour.

***

You may think that this is all a bit over the top.  Arguments about the architecture of aid may sound rather abstract and rarified, but aid is a scarce, precious resource and it is no exaggeration to say that if we spend it badly, the result is the avoidable deaths of literally millions of people.

Here is a new paper by Channing Arndt, Sam Jones, and Finn Tarp on whether aid leads to economic growth. The econometrics are done carefully, and it finds that aid inflows of about 10 per cent of GDP lead to an increase in economic growth of about 1 percentage point. (Reassuringly, this is also broadly consistent with a common sense calculation of the sort of effect that aid ought to have.)   They also find evidence of bigger, more positive effects of aid, consistent with positive effects of aid on productivity.

I’m not a fan of these aid-growth regressions, because they are technically difficult to do well (see David Roodman’s article on the problems.)  But they are important for one reason: they are a more systematic way of doing the popular “folk regression” offered by authors such as Dambisa Moyo and Bill Easterly.  When Moyo and Easterly point out that countries that have had high levels of aid have also suffered from slow growth, they are implicitly pronouncing on whether there is a statistical relationship between aid and growth.  But of course you would expect to see a lot of aid going to poor countries (rather as ambulances tend to be present at the scene of road accidents)  so these simplistic comparisons do not tell us very much about the effect of aid on growth. The more careful question to ask is whether, other things being equal, aid leads to higher or lower growth, and that is what this kind of statistical analysis investigates.  It is good to have confirmation that the folk regressions are wrong and that aid does, as best we can tell, lead to economic growth.

There are a few other interesting things about this paper:

• the paper uses the same data as the infamous and oft-cited Rajan and Subramanian paper which claimed that there was no effect on growth (which I criticised at the time here) and finds that, if the regressions are done more carefully, those findings were not correct;
• the effect of development aid on growth is probably understated by this analysis because it includes all aid (unlike the paper by Clemens, Radelet, and Bhavnani, which subtracts humanitarian aid and other aid which is not intended to lead to economic development and finds – as you would anticipate – much larger effects of aid on growth from the subset of aid that is actually intended to promote development);
• there is no sign of diminishing returns to aid in this analysis. (This is an unusual finding – generally studies have needed to include a diminishing returns term to generate a statistically significant relationship between aid and growth).
• the study uses donor-specific fixed effects (the only study to do so, as far as I am aware). I’m looking forward to looking at these in detail, as the estimates will give us an insight into which donors are the most effective.

(h/t Chandan)

Update: David Roodman, whom I regard as an authority on these matters, thinks that I am wrong and Bill Easterly is right.

Tim Harford at the FT has an article in today’s FT weekend magazine which endorses the ideas in my recent working paper, Beyond Planning: Markets and Networks for Better Aid.

I’m envious of Tim’s ability to  express the ideas so much more succinctly and clearly than me.  He writes:

it might be easier to change the rules of the game to encourage real competition than to change behaviour

That’s my argument in a nutshell.

Tim also writes:

if you imagine a Howard Schultz of Starbucks attempting to “harmonise” the world coffee-bar industry, you can see how idiosyncratic the harmonisation agenda actually is.

My new working paper, Beyond Planning: Markets and Networks for Better Aid is on the Center for Global Development website in the innovations in aid series.

In the paper I argue that more planning and coordiation among donors will not overcome the political constraints that prevent better aid.  The aid system is in a political equilibrium which we need to try to change; we won’t solve aid’s problems by trying to move away from the equilibrium.  This means making more use of market and network mechanisms to change incentives within the aid system. We need to stop thinking of grand new designs of the aid system and start putting in place mechanisms that force evolution in the right direction.

I’ve listed a set of measures, from the commonplace (untying aid, for example) to the unusual (tradable missions permits, or a tax on proliferation pollution) to illustrate the ideas.

I’ll be discussing the paper at the Overseas Development Institute (ODI) on Friday, and on a forthcoming episode of Development Drums.

I’m looking forward to comments and feedback.

Have a look at this video produced by the International Budget Partnership.

The video is about the way that a civil society organisation in Kenya, MUHURI, has enabled a local community in Mombassa to hold their government to account.

(Disclosure: I work on aidinfo – a small research team which promotes the adoption of open standards for the publication of detailed information about foreign aid, to enable people in developing countries to hold governments and donors to account.)

There are bad reasons and good reasons for supporting the use of innovative finance for development. Unfortunately, some development advocates seem williing to back any proposal that they think might raise more money for development, instead of focusing on mechanisms that will improve the way that money is used.

When is innovative finance good?

Innovative finance can improve the effectiveness of aid spending. There are at least four ways this can work.

First, innovative finance can improve intertemporal optimisation.  Aid budgets are often given from year to the next, which makes it difficult to spend the money at the best time.   For some spending, it makes sense to spend today to save money tomorrow (for example, spending money to eliminate smallpox reduced the need for health care spending later on).   It is not always sensible to bring forward spending – particularly if you believe that there are diminishing returns to some kinds of aid spending. The International Finance Facility for Immunisation is a good example of how spending tomorrow’s aid today can be sensible, because future generations benefit from the increase in herd immunity in today’s beneficiaries.

Second, innovative finance can create a commitment technology.   There are many benefits to being able to make commitments – which is why in normal life we have mechanisms such as contracts and warranties.   We need commitments to deal with dynamic inconsistency and to allocate risks.  But constraints on aid agencies make it very hard for them to make commitments about aid.  A good example of an effective forward commitment is the Advance Market Commitment, which guarantees manufacturers a more lucrative price if they develop and produce a new medical product for developing countries.  Forward commitments enable governments to invest in reforms which have costs over several years, or firms to invest in new products for developing countries.

Third, innovative finance can change incentives both for donors and recipients.  For example, funding schemes that link payments to results may reduce the incentives of donors to micromanage the way aid is used.  If payments to organisations are linked to demand (eg through a virtual voucher scheme) they may improve their services for beneficiaries.

Fourth, innovative finance can improve the allocation of risk.  Insurance pools may diversify risk, and permit rapid increases in funding in the case of disasters.  We can pool medicines, for example, so that they are available to whoever needs them first.  Stabilization funds with automatic disbursement criteria can ensure that finance is rapidly available, without strings, where and when it is needed.

In each of these four cases, well-designed innovative finance can increase the productivity of aid spending.  As aid becomes demonstrably more effective, so in the long run we can make the case for greater investment.

When is innovative finance not good?

While there are excellent reasons to identify innovative ways to give aid, the need to increase funding is not one of them.  I am in favour of a large increase in aid, but not in favour of achieving it by distorting rational decision-making on taxation and spending.   Many development advocates support schemes to tax financial transactions (a so called “Tobin Tax”) or airline tickets, or a new global lottery (a tax on the poor), if these are used to pay for increased foreign assistance.    I understand the desire to get aid any way we can, but I don’t respect this kind of opportunism.

We should determine the structure and level of taxes on the basis of evidence about the most effective (or least damaging) ways of raising the revenues we need; and we should decide the level of spending on the public’s various priorities based on how we will do the greatest good.  Linking a particular kind of spending to a particular revenue  cannot improve choices about spending or tax, and may unnecessarily constrain them.

Conclusion

Some particularly misguided proposals involving introducing taxes on goods or services we would not normally considering taxing (such as investment in information technology).  By linking these proposal to the (rightly appealing) goal of increasing aid spending, we are in danger of being seduced into doing the wrong things for the right reasons.

Innovative finance holds rich possibilities for accelerating poverty reduction by making aid money work better.  If we can find ways to relax the institutional constraints on spending money at the right time, or increase our ability to make rational commitments, we can make aid money work harder.  In time, this may mean that taxpayers and donors are willing to spend more.  But we should not invent mechanisms whose main effect is to bypass our existing processes for making sensible decisions about tax and spending.

Over on Huffington Post, Seth Berkley and Orin Levine make a plea for the United States to consider an Advance Market Commitment for an AIDS vaccine:

Traditionally it has taken up to 20 years for new vaccines to reach children in developing countries. The AMC can fix this inequity. Through the pneumococcal AMC, and with the support of the GAVI Alliance which administers it, children in Rwanda and the Gambia are benefiting from pneumococcal vaccines even before children in wealthy countries such as Austria and Japan. What’s more, the mechanism is spurring development and deployment of two newer vaccines that extend protection against strains of pneumococcal disease most common in the developing world. Thanks to such advances, the accelerated use of pneumococcal vaccination is projected to save 5 to 7 million lives by 2030.

The idea (which is mainly down to Michael Kremer at Harvard) is simple: donors promise in advance that if somebody invents and delivers a vaccine that meets certain requirements, then donors will  pay for it to be bought in large quantities.  That promise may provide sufficient certainty for the private sector to invest in developing new products, and to build large-scale manufacturing facilities.  Take a look at this video to see what a difference Michael’s idea is already making.

From a public policy point of view, a nice feature of this schemes is that if it doesn’t work, it doesn’t cost anything.  If you make a promise to purchase an AIDS vaccine when one is developed, but scientists are unable to crack the puzzle, then you have not spent a dime.  You are only committed to buying an AIDS vaccine when it is developed – which, let’s face it, you would have done anyway. By making a firm commitment in advance, you change the incentives for the private sector.  (The economics is set out here in an article in The Economists’ Voice.)

This scheme is designed to tackle an economic problem that runs deep in most market  economies. We typically set up incentives for firms to innovate by promising them a temporary monopoly (through patents) if they are successful. This enables a firm to charge a premium for a limited period to recoup its investment and to compensate it for the risk it has taken.  But this scheme only works if the consumers are willing and able to pay that premium.  (And even then, it has a social and economic cost because it excludes consumers too poor to pay the premium).  The scheme doesn’t work at all for products most of whose consumers are very poor – such as people who get malaria or who need cassava plants that are resistant to attack by the mosaic virus.  That’s why firms spend ten times as much hunting for a cure for baldness as they do hunting for a cure for malaria.  The Advance Market Commitment makes investment in those products much more attractive to the private sector, because now there is an opportunity to charge a premium (paid by the donors) even though the ultimate consumers are poor.

We will be in a better position to judge the effectiveness of the pneumococcal AMC when kids are actually getting injections paid for under the AMC. An important test will be whether we see pharmaceutical firms returning to the development and large-scale production of vaccines for developing countries (and there are some early signs that this is happening).

But the Pneumococcal AMC has already taught us that it is possible to navigate the legal, financial, commercial and political waters to put in place a legally-binding multi-donor commitment to buy a future product. This is the result of outstanding work done by the Center for Global Development (in which I am proud to have played a small, walk-on part).  Early nay-sayers complained that an AMC was theoretically attractive but impossible in practice.  CGD played a critical role by developing a practical way of implementing the idea, which opened the door to the implementation of the pneumo AMC.

Now that it has been shown that an AMC is technically possible, we should be looking at:

• designing an AMC for an “early stage” vaccine such as AIDS;
  It is occasionally said that an AMC works for a late stage product – ie one that has already been largely developed but needs incentives to get it produced – but that it would not be appropriate for products still requiring substantial research and development.  There is no logic to this argument. The original modelling for an AMC was done for an early stage vaccine, and I have never seen a cogent case against using the approach (alongside conventional government funding for basic research) for products at an early stage of development.
• how to get the United States involved
  This approach – of providing incentives for private sector entrepreneurship and risk taking  to be involved in products for developing countries – ought to appeal to US policy-makers, and I have never understood why the US stood aside from the first AMC. There are some technicalities involved making commitments in the US budget process but these are not insurmountable.  Let’s hope the US will be part of the next AMCs.
• using the AMC approach for other health products
  In principle, the AMC could be used to encourage the development and manufacture of a range of other health products such as drugs, diagnostics and surgical instruments
• using the AMC to promote other forms of other research and development
  we should consider whether the AMC might be a good approach for donor funding of other forms of research and development for products mainly used in the developing world, such as new agricultural varieties, solar energy products, and ways of providing clean water.
• the possibilities for other forms of “pull” incentive for research and development
  The AMC is not the only possible pull mechanism to incentivise research for products needed in developing countries. For example, donors might set up schemes to buy out patents, prizes or other rewards for success (e.g. payments linked to DALY’s averted or social rates of return). We should look again at the costs and benefits of these different ways of getting the private sector involved.

Tim Harford has an interesting article in this weekend’s Financial Times about private health and education in developing countries:

Imagine that your daily earnings were less than the price of this newspaper. Would you consider buying private education and private healthcare?

Before you make up your mind, here are a few considerations: government healthcare and primary education are free; the private-sector doctors are ignorant quacks and the teachers are poorly qualified; the private schools are cramped and often illegal. It doesn’t sound like a tough decision. Yet millions of very poor people around the world are taking the private-sector option. And, when you look a little closer at the choice, it’s not so hard to see why.

Now there is a dilemma here.

On the one hand, we know that charging even a very small amount massively reduces the take-up and impact of services such as health and education. (This survey by Holla and Kremer summarises the evidence.)  So charges excludes many people from access, and it seems likely that the poorest and most vulnerable will be excluded most of all.

On the other hand, we know that public services in developing countries are often poorly managed and badly delivered. That’s why, as Tim points out in his FT article, many of the very poorest people choose to go private instead.

Apologies if this is anecdotal, but I see this dilemma in practice every day. My partner works for Marie Stopes International, which operates 21 clinics for women (providing contraception and abortion) here in Ethiopia.  They charge their clients for services – a small amount which is just enough to pay for the cost of running the clinics.   The result is that they are very focused on delivering services that will bring their clients into the clinics every day – that is, services that they actually need, at a price they can afford.  My feeling is that, as a result, they are more focused on their customers than most public services in developing countries, and indeed in some developed countries, whether financed by aid or by taxation.

So how can we disentagle ourselves from the horns of this dilemma?  Here are three thoughts:

• First, we should take seriously Tim’s observation that “a little accountability goes a long way” and think  much harder about how we can make public services more acountable.  You have probably heard about the way more funding reached Ugandan schools as a result of greater transparency (though the details have been disputed (pdf)). The work of my team on aid transparency is a modest contribution to this effort.
   
• Second, we should not be ideological about whether the public or private sector actually provides services, as long as the government takes steps to ensure that there is universal access. For example, governments (with the support of donors) might issue vouchers to the poorest, enabling them to choose for themselves whether to use public or private services.
   
• Third, in the long run this problem will be reduced if and when there is equitably shared economic growth which gives people sufficient incomes for these kinds of choices to be more reasonable.

For two years I worked at the Center for Global Development on Michael Kremer’s idea that donor nations should create stronger commercial incentives for drug companies to develop and manufacture drugs and vaccines needed for developing countries by guaranteeing to pay for them if they are produced.

On 12th June, a group of donors signed the first Advance Market Commitment.  Here is the Wall Street Journal

The $1.5 billion program marks a departure from previous charitable efforts to increase poor countries’ access to vaccines. Instead of buying existing drugs and giving them away, the donors will guarantee pharmaceutical companies a future market big enough to justify developing and manufacturing new vaccines needed in nations too impoverished to afford them on their own.

The donors — Italy, the U.K., Canada, Russia, Norway and the Bill and Melinda Gates Foundation — plan to announce the initiative Friday on the sidelines of a meeting of top finance officials from the Group of Eight major industrial powers, according to Italian officials.

The first target will be a vaccine to prevent pneumococcal disease, which kills 1.6 million people in the world a year, the majority of them young children in the developing world.

The scheme is projected to prevent between five million and eight million child deaths by 2030.

The Center for Global Development has played a remarkable role shepherding the idea from concept to practical scheme to launch.  For me it has been a great privilege to be involved. As well as the possible direct benefits of this particular commitment – perhaps saving millions of lives – we have helped to think about new ways in which the rich can support people in developing countries, in this case using financial incentives to help stimulate the private sector to meet the needs of people in poor countries.
 

Forgive the puff for my day job – aidinfo works to make aid more transparent and accountable.

Our web guy has done a great job on our website: http://www.aidinfo.org.

Also you can subscribe to our RSS feed.

In the FT debate on aid, Dambisa Moyo, author of Dead Aid, seems to be adjusting her position:

To focus on the five-year aid-reduction example that my book offered as an illustration of an exit strategy deliberately misses the point, which is that Africa desperately needs to wean off aid. Obviously, a blanket five-year plan imposed on countries with different challenges and different circumstances would be ridiculous!

One can only interpret the fact that my detractors took the five-year example at face value as wilful blindness or a complete unwillingness to see Africa in any other light than a basket case. An aid exit might take 10 years, it might take 15, but after 60 years of the aid-regime (with no concomitant job creation) surely it is better to start the conversation (and the strategy) of aid exits than not.

Indeed, cutting off aid in five years would be ridiculous.  On that we are agreed.  I don’t know anybody involved in aid who does not fervently wish for the day when countries are rich enough to do without aid, and who wants to give aid in ways that bring that day forward.  If Dambisa Moyo is simply saying that we should all work towards removing the need for aid, then I am not sure why there is such a fuss.

So what made us think that Dr Moyo was advocating a five year plan to reduce aid? Perhaps it was remarks like these in just about every known newspaper:

In the book I actually prescribe that they should, with immediate effect or in the very near foreseeable future, implement a five-year plan where they systematically reduce aid to these countries.

Or perhaps it is because she says this in Dead Aid (p144):

What if, one by one, African countries each received a phone call (agreed upon by all their major aid donors – the World Bank, Western countries etc), telling them that in exactly five years the aid taps would be shut off, permanently? Although exceptions would be made for isolated emergency relief such as famine and natural disasters, aid would no longer attempt to address Africa’s generic economic plight.

You can see why some people got the impression that Dr Moyo was proposing that aid should be shut off after 5 years.  But it is reassuring to know that this was not her position, or at any rate it is no longer her position.

Even with her new cuddlier policy of turning off the taps more gently, there is still a lot of wild and unsubstantiated garbage in her book – for example, this:

The problem is that aid is not benign – it’s malignant. No longer part of the potential solution, it’s part of the problem – in fact, aid is the problem.

Here is my review of Dead Aid. Here are some other reviews.  Andrew Pickering at Global Dashboard has a good summary of the debate so far.

Cashewman quotes a friend:

“You can give a man a fish, and he’ll eat for a day. You can teach a man to fish and he’ll eat for a lifetime. But did you ever ask him if he wanted a fucking fish in the first place? And it’s not as simple as a fish anyway.”