(First published as a blog post on the Center for Global Development’s Views from the Center.)
On Friday the Governors of the European Bank for Reconstruction and Development (EBRD) will decide who will be the Bank’s next President. I’ve interviewed four of the candidates and the interviews are now online for you to listen to, and you can read the transcript here.
In September 2009, the leaders of the G-20 meeting in Pittsburgh called for the
“the heads and senior leadership of all international institutions [to] be appointed through an open, transparent and merit-based process.”
Despite this commitment, over last few months European Ministers have been horse-trading behind closed doors to try to get one of their nationals into a number of jobs which are up for grabs: as well as the Presidency of the EBRD, Ministers have to find a new Chair of the Eurogroup, someone to head the Eurozone’s permanent bail-out fund, and a new member of the board of the European Central Bank. But European Ministers have not been able to reach agreement, so for the first time ever the EBRD Governors have not been presented with a fait accompli. Five candidates will be in London this Thursday to be interviewed for the role, and the Governors are expected to make a decision by the end of the week.
At the Center for Global Development we believe this appointment should not be based on nationality, in some gigantic trade-off between unrelated institutions, but on the basis of merit and substance. We hope to make our own modest contribution to this by offering a public forum for the candidates to discuss their vision for the future of the EBRD.
Over the last couple of days I interviewed the four candidates who accepted our offer. We’ve put the interviews together in a Development Drums podcast. You can listen to this online, or download the podcast to your MP3 player, either from the Development Drums website or free in iTunes. You can read the transcript here.
The four candidates who agreed to be interviewed are: Thomas Mirow (at 03:58), the incumbent who has completed one four year term as President and is seeking re-election for the second term; Jan Krzysztof Bielecki (at 17:40), former prime minister of Poland; Suma Chakrabarti (35:45), a senior British civil servant; and Bozidar Djelic (at 47:43), the former deputy Prime Minister of Serbia. The fifth candidate, Philippe de Fontaine Vive Curtaz, is vice president of the European Investment Bank and did not choose to participate in this process.
In the interviews, the candidates talk about the implications for the EBRD of the planned expansion to the Southern and Eastern Mediterranean. They respond to criticisms of the EBRD for not doing enough on gender. And they talk about how their own professional background equips them to be an effective leader of the institution.
The interviews reveal some striking differences of view between the candidates. For example, the candidates offer quite different opinions about the extent of change that will be needed in the organisation to fulfil its new mandate in North Africa and the Eastern Mediterranean. Candidates also had quite different views about how they would respond to the criticism of the EBRD’s approach to women.
Given the differences in substance between the candidates revealed by these interviews, nobody should be in any doubt that the choice of the next president of the EBRD will have important real world consequences.
Listen to the interviews online, find Development Drums in iTunes, or read the interview transcripts.
The UK has repeatedly said that it favours merit-based appointments of the heads of the World Bank and IMF. It is also a leading advocate for transparency and accountability in development. Now it can live up to both these commitments.
The UK Executive Director will shortly be casting a vote on behalf of British citizens for the next President of the World Bank. At the beginning of the process it was widely assumed that all the European countries would back Dr Jim Kim, because he is the American nominee. Now that all three candidates have been interviewed by the board, I gather that is no longer being taken for granted.
The average British family contributes more than £30 a year to the World Bank and they are entitled to hold the British government to account for the choices that the British government makes about how it is managed. There is no reason why Bank shareholders should presume to fill this job without consulting the publics whom they represent. Since Andrew Mitchell believes in transparency and accountability, before casting the UK’s vote, the UK government should:
a. set out what it regards as the merits which are important for a ‘merit-based’ appointment (presumably these do not include ‘is an American’)
b. given these criteria, say which candidate it plans to support on behalf of the British public.
My former civil service colleagues will come up with any number of reasons why they do not want to reveal their hand; and few governments like to be accountable for hard choices. But the system of making international appointments by doing back-room deals behind closed doors has not served us well, often resulting in the wrong people ending up in powerful jobs. Whitehall rightly argues that transparency improves decision making in other aspects of public life; they should let the sunlight in here too.
Nominations for the head of the World Bank have now closed, and there are three candidates:
- Jim Kim, nominated by the United States; President of Dartmouth College, former head of HIV at the World Health Organization, and a founder of Partners in Health;
- Ngozi Okonjo-Iweala, nominated by Nigeria, South Africa and Angola; finance Minister of Nigeria, former foreign Minister of Nigeria; former Managing Director of the World Bank
- José Antonio Ocampo, nominated by Brazil; a professor at Columbia University; former UN under-secretary for economic affairs; former Finance Minister of Colombia.
That means that for the first time ever there is a genuine contest. In previous years other shareholders were faced with the choice of accepting or rejecting the US nominee. This time round, with three serious candidates to choose from, it is not clear that the US nominee has to win. The other shareholders should now take a moment to consult, and assess which candidate they think is best for the job; and it is very important that they should do so in an accountable way, for the sake of the integrity of this appointment and for the future of the governance of international institutions.
Should merit or nationality determine which person becomes President of the World Bank?
In the past, the head of the World Bank was nominated by the United States, and has been a US citizen, under a so-called ‘Gentleman’s Agreement’ reached shortly after the Bretton Woods conference in 1944. This does not reflect, as is sometimes supposed, the fact that the US alone has sufficient voting power to veto an appointment. The origin of this arrangement was that the US Treasury Secretary at the time, Frederick Vinson, convinced John Maynard Keynes that it was necessary for the World Bank to have an American at its head to secure the confidence of Wall Street, which was to be the main supplier of capital to the Bank in the early years. Of course today capital markets are global, and this rationale for US leadership of the World Bank no longer applies. In return for the leadership of the World Bank, the US gave up their claim to appoint the Managing Director of the IMF.
An appointment requires an 85% super-majority of the votes of the Board [UPDATE: I now believe that this appointment can be made by simple majority]; this means that the US can veto an appointment, but it also means that a candidate could be blocked by a coalition of three European directors plus the nominating constituency of one of the candidates; or by any four of the directors from the UK, France, Germany, Spain, Italy, Sweden and Switzerland. In other words, if the European shareholders choose to act together they have at least as much power as the United States to block an appointment.
In the past when there was only one nomination, it made little sense for any other country to oppose the person on offer – since that would mean getting off on the wrong foot with the new World Bank President and annoying the US administration to boot. Opposing the nominee would mean having to mount an invidious attack on the individual that the US government had nominated. So any US candidate had unstoppable momentum.
But with three candidates on offer, all this changes. If the European shareholders were to make it clear right away that they do not regard this as a done deal, and that it has not been stitched up already in private conversations between officials, then the dynamics change completely. Anyone can win, and that means that it no longer makes sense automatically to back the American nomination. That would make it both possible and necessary for each of the shareholders to consider the candidates on merit.
The world needs more effective global economic governance more than ever. This appointment can make an important contribution to that: as well as giving direction to an economically significant institution, the President of the World Bank has a seat at the table of G-20 meetings alongside the heads of state of the most powerful nations.
In the past, these decisions have been made by governments negotiating privately, with no public accountability for the choices they make. Europeans blamed the US for having nominated Paul Wolfowitz in March 2005, but their own governments did not exercise their power to prevent his appointment. The consequence of this lack of accountable decision-making was a series of poor appointments (such as Strauss-Kahn at the IMF and Wolfowitz at the World Bank) and the exclusion of highly qualified alternatives, to the detriment of the reputation and authority of both institutions.
These deals behind closed doors for posts in key institutions based on nationality are an obstacle to effective global governance. Right now the UK will be offering to support Jim Kim for the World Bank in return for US support for the UK candidate for the EBRD, Sir Suma Chakrabarti. But that is no way to make either appointment. Jim Kim should not be appointed because of his nationality; nor should he be precluded on that basis. Let all three candidates be judged on their merits against the criteria of who has the best qualifications for the post.
The United States and the European governments have all said that they favour an open, merit-based competition. A good step would be for shareholders to set out publicly what they consider to be the ‘merits’ required for the post. Do the governments agree with a CGD survey some years ago whose respondents ranked the criteria as (in order): efficient manager, experience of international organisations, knowledge of development, political and diplomatic experience, and banking and finance?
Having set out what they consider to be the main requirements for the job, the member governments should say publicly which candidate they plan to support. They should set out the case for their favoured candidate, which they can do without criticizing the other nominees. It may be clear quite quickly which of the candidates is best qualified for the job; or further discussion may be required.
Such a focus on qualifications will make it harder for appointments to be made in future on the basis of nationality. Governments would find it harder to acquiesce in the appointment of inferior candidates, based on some tawdry trade-off, if they have to set out the basis for their choice and be held to account for it domestically. Using transparency and accountability in this way would help to improve the governance and effectiveness of our global institutions.
Of course, much of the public has never have heard of the President of the World Bank and they are unlikely to be much interested. But there are some who will care, as befits international financial institutions which are ever important for the stability of the world economy. Furthermore, the average British household contributes more than £30 a year to the World Bank, and that alone entitles them to some involvement in the decision about how their representative on the World Bank board will vote on their behalf. The British government has a very good record of promoting transparency and accountability of the development system; they should put that into practice for this appointment.
The fact that there is, for the first time, a contested election, and no automatic presumption that the US nominee must win, creates an important opportunity to improve the way our global institutions are managed. Shareholders can act now to ensure that this really is an accountable and transparent appointment based on merit, and so start the world down the road of cleaning up the way we make these important international appointments.
On Friday the World Bank London office had a meeting on ‘the Future of Aid’. The meeting was, according to the tortuous language of the invitation, “conducted in an informal manner with interested stakeholders from governments, civil society, private sector, media and academia with a view to explore new ideas on how best to explore cooperation between European actors and the World Bank Group in addressing these challenges.”
Annoyingly the meeting was held under The Chatham House Rule which means I am not allowed to report who said what. (Tangential thought: I am considering ignoring this in future if the invitation does not make it clear that this is the basis on which the meeting is being held.) I am allowed to tell you that the group included people from ODI (Simon Maxwell & Andrew Rogerson), a co-author of Philanthrocapitalism (Mike Green), DFID (Paul Healy Healey & Laura Kelly), the EBRD (Erik Berglöf, Gaspard Koenig & Hans Peter Lankes), and representatives from KPMG (John Burton), ActionAid (Lucia Fry), Save the Children UK (Jessica Espey & Kate Dooley) and BOND (Joanna Rey).
It turned out to be an interesting discussion.
First, there was considerable pessimism about the public’s appetite for aid. Opinion polls depend heavily on how you ask the question, but a common theme seems to be that the public’s concern for poverty and development is stable and quite high; while the public’s confidence in government aid is falling rapidly. There are several reasons why these may be diverging, which are not mutually exclusive. Declining support for aid spending may be the effect of the economic downturn; it may reflect a trend towards public distrust of bureaucracies; it may be the long term consequence of aid’s failure to live up to its supporters’ excessively grandiose claims of what it can achieve. There was some debate about whether a greater focus on ‘results’ could reverse this. Hardly anyone seriously argued that declining public support is merely a temporary consequence of the economic downturn which will reverse automatically when incomes start to grow again.
A second interesting theme was the tension between more effective aid, and aid which donors are willing to provide. It is possible that as the system shifts towards greater recipient country control of how aid is used (as envisaged under the Paris Declaration), so support for aid in donor countries declines. If you can’t use aid to promote your economic, commercial, security and strategic interests, then you might not want to give it at all. Bertin Martens memorably pointed out that the end of structural adjustment programmes in the 1980s (under which donors attempted to impose various policies on recipient countries) was followed by sharp decline in aid in the early 1990s. If you see the aid relationship as an equilibrium between the interests of the donors and the interests of the recipients, and if the Paris Declaration is an effort to move away from this equilibrium by reducing the power of donors and increasing the power of recipient countries, then perhaps declining aid budgets today are a consequence these modest moves away from the equilibrium. There is almost no public support for budget support (a form of aid which embodies many of the Paris principles) and budget support may now in retreat – so perhaps the aid system was temporarily pulled from its equilibrium by Paris, and may now be heading back to it again. In other words, there may be a choice between an abundance of somewhat ineffective aid which balances the interests of recipients and donors, and aid which is less conducive to the interests of donors, more effective at reducing poverty, but much less abundant. Aid agencies have a stronger internal interest in abundance than in effectiveness, and so will tend to support a return to the equilibrium in which aid is popular and plentiful, but not tremendously effective.
The third theme was the most interesting. Mike Green recalled an idea from Empire, a ghastly book published in 2000 by Antonio Negri and Michael Hardt, which suggested that activists may organize themselves as a ” post-modern posse”. Mike suggested that, in the absence of effective mechanisms for global governance to provide public goods in a rules-based system, we are left tackling these problems in temporary coalitions, or posses, which come together outside formal structures and without formal legitimacy. Examples range from the coalitions of the willing which come together to support military intervention, to the vertical funds which have proliferated in the aid industry. (Mike was not suggesting that this was desirable, but pointing out that this may be what happens in a second-best world without effective global institutions). This idea clearly resonated with the group, which recognised the applicability of the metaphor as a description of today’s development system. (Update: more on the ‘posse’ idea from Mike Green and Matt Bishop here.)
My own view, for what it is worth, is that:
- we should consciously reposition aid as support to those who are most marginalised to provide them with access to key services such as food, water, health and education, and move away from the idea that the purpose of aid is to accelerate economic development;
- that’s not because economic development isn’t an important objective; but it may not be the best use of aid;
- the main things that industrialised countries can do to promote economic development in the developing world may be changes in other policies ‘beyond aid’ such as trade, climate change, migration, climate change, cooperation on tax, tackling corruption and illicit financial flows; and arms sales;
- some organisations which profess to be interested in development are too heavily focused on aid and not enough on how we can improve these other policies.
Primary school close to our house in Addis Ababa
Living in Ethiopia for the last three years, I saw aid working every day. I saw children going to school, health workers in rural villages, and food or cash preventing hunger for the poorest people. The academic debates about aid effectiveness seem surreal when you are surrounded by tangible, visible evidence of the huge difference aid makes to people’s lives.
But on the whole the sceptics are not disputing that kids are going to school because of aid. They are asking what effect that has on the country as a whole. Does it lead to economic growth? Does it drive up the exchange rate and so damage competitiveness? Do governments become dependent on donors and so less accountable to their own citizens? Does aid keep the bad guys in power?
It is possible that aid is effective in terms providing people with basic services, and at the same time that it is not effective at increasing economic growth. It is even possible that aid simultaneously does short-run good (better services) and long-run harm (worse institutions).
It was this difference between perspectives which made me want to respond to the call for evidence in an investigation into aid by the Economic Affairs Select Committee of the British House of Lords. This committee, which includes some well-known economists and other public figures, is examining the ‘Economic Impact and Effectiveness of Development Aid’.
My written submission is here. It is just six pages long. ( I’m very grateful to Stephanie Majerowicz for her help putting this together.)
The submission begins by trying to address the question of what aid is for, which seems to be the source of much of the confusion about whether aid works. Aid is often regarded as having two purposes: humanitarian aid to alleviate suffering usually in an emergency, and development aid to promote economic growth and sustained prosperity. But this is a false dichotomy: most aid falls into neither category. About two thirds of British bilateral aid is spent on improving services such as education, health, water and sanitation. This aid is not a temporary humanitarian response to an emergency, but a long-term contribution to the provision of key services and an investment in the institutions needed to provide them in the future. The success of this aid is not best measured by whether it leads to growth in the short or medium term, but by the improvements it brings about in the quality of people’s lives.
The submission then reviews the evidence about whether aid leads to economic growth (answer: we don’t know) and whether aid improves people’s lives (answer: yes it often does). The more interesting question is not whether aid works, but which aid works.
But there are also possible adverse effects of aid, and these are potentially serious. The submission suggests that these may be mainly a consequence of how aid is given and that they can largely be eliminated if donors give better aid. But that requires donors to overcome domestic political obstacles to reform of aid.
The evidence finishes with ten suggestions for how to make aid work better. They are:
- Spend more through the multilateral system
- Make aid more predictable
- Make aid transparent, accountable and traceable
- Build the accountability of governments to their parliaments and citizens
- Focus on results and use this to simplify aid
- Invest more in global public goods, especially new technologies
- Focus aid on people in chronic poverty, and on women and girls
- Leverage the private sector
- Use innovative finance to increase the productivity of aid
- Learn more and fail safely
It is a good discipline to be concise, but it is not possible to do full justice in six pages to the nuances of these issues. I have tried address the big questions with what I hope are balanced and dispassionate judgments. I hope you will let me know in the comments if you think I’ve got these right.
Read the full submission here.
This blog post was also published on CGD Views from the Center.
Dominique Strauss-Kahn has been accused of a horrible crime. Like everyone else he is entitled to the presumption of innocence until proven guilty.
We may, however, soon find ourselves looking for a new Managing Director of the IMF, either because DSK is involved in a legal case or because he has declared himself a candidate to be President of the French Republic.
The speculation has already begun (see Alan Beattie in the Financial Times) with Christine Lagarde being touted in some quarters as a likely successor.
Under an unwritten agreement, the IMF’s managing director has always been European and the president of the World Bank has always been from the United States. (Jim Wolfensohn had to take out American citizenship to get himself nominated.)
This seems a good time to recall the Leaders’ Statement at the G-20 summit in London on 2 April 2009:
we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process;
This is important for four reasons. First, we want good people in these jobs. This is more likely if we thrown the field open to good people like Kemal Derviş and Trevor Manuel as well as Americans and Europeans, and make a choice based on merit not nationality. Second, people in these roles should owe their allegiance to the institution not to their own government. Third, it is important for the legitimacy and effectiveness of these institutions that they do not appear to the rest of the world be the fiefdoms of rich and powerful nations, to be used as sinecures for supernumerary or inconveniently-placed politicians. Fourth, it brings the G-8 and G-20 into disrepute to say these things in communiques if we have no intention of implementing them.
The traditional next step is for the Europeans to do a deal behind closed doors, get American agreement, and then to accompany the announcement of a fait accompli with a lot of public hand-wringing about how the process will be better next time.
The Europeans want a fair and open process for the appointment of the next President of the World Bank rather than having to accept another imposition from the Americans. The only way to achieve that is to relinquish our hold on top job at the IMF. It looks as if we may shortly have the opportunity to do it.
Paul Collier’s last book, The Bottom Billion, proposed that there are four “traps” in which the poorest countries can become enmeshed (a conflict trap, resource trap, geography trap and governance trap). He vividly explains why he thinks that “business as usual” will not lift these countries out of poverty, creating the prospect that 58 countries, home to the poorest billion people, will fall further and further behind the standards of living of the rest of the world.
At a conference at Wilton Park this week a number of people gathered together to review progress since the Africa Commission and Gleneagles Summit in 2005, and to discuss the prospects for a transformation in Africa over the coming years. One participant (one of the authors of the Africa Commission report) argued that the Commission set out a comprehensive action plan which, if implemented across the range of its recommendations, could address these traps and lead to real progress.
I am not so sure. I think there is a fifth trap facing Africa which is more chronic and pervasive than any of the four traps identified by Paul Collier. It is the “unfair rules” trap, and I think it makes it very hard for Africa to make much progress on the other four.
Development and an improved standard of living for people in developing countries will come not from aid but from industrialisation and economic growth. We do not know exactly how to ensure that these economic transformations occur, though there is much we can do to create the conditions in which it is more likely. (Aid can help create the conditions for growth, and can help people to live better lives while the process is under way). But as the world economy becomes more integrated and more globalised, many (though by no means all) of the determinants of a country’s opportunities for economic development are determined by international institutions, systems, rules and agreements.
The “unfair rules” trap is that the rules of the game are determined by the rich for the rich. And the consequence for the poorest countries is that they are having to fight uphill to create conditions for their development; so they continue to fall behind the rest of the world economically. Their relative lack of economic power reinforces their lack of political influence internationally and so makes it harder for them to influence the institutions and rules which contribute to their continued economic marginalisation.
This “unfair rules” trap takes many forms. There is a myriad of complicated rules and institutions that affect a huge swathe of economic and political life. These international agreements range from highly political – such as the global allocation of the right to emit greenhouse gases under the post Kyoto framework for climate change – to the deeply technical such as phyto-sanitary standards which unnecessarily limit exports of groundnuts from Africa to Europe.
On BBC World this weekend there is a debate among a group of African leaders in which Linah Mohohlo, the Central Bank Governor of Botswana, points out that new global rules are currently being devised to promote financial stability – an issue that affects every country in the world – without any participation by Africans.
Consider our attitude to property rights. Rich countries have attached considerable importance to the establishment and global enforcement of intellectual property rights, which enable their firms to secure revenues from the use of their intellectual property. They have, for example, pursued this through the WTO. Whatever you think about intellectual property rights, there is no doubt that they can be expensive for developing countries, both because of the huge revenues that flow from Soweto to Seattle and because of the restrictions imposed on access to vital knowledge rich products such as pharmaceuticals, software and business practices. But consider a parallel property right: the right to emit greenhouse gases. Like intellectual property rights, emission rights are an institutional construct designed to bring about an improvement in economic efficiency (by rewarding innovation in the case of IPRs, and by taxing polluters in the case of emissions rights). Emissions rights, if properly designed, fairly allocated and enforced around the world, would entail a reallocation of wealth from rich countries to poor countries. But while the rich world is happy to insist on the importance of intellectual property rights (of which it is a seller) it is unwilling to consider the establishment of property rights over assets for which it would be a buyer. In the run-up to the summit in Copenhagen, there was no serious discussion of the idea that every citizen should be entitled to an equal share of the atmosphere, and that anyone wanting to occupy more than their fair share should pay compensation to those who are using less. The discourse is limited to the realpolitik of what rich countries are likely to accept.
Of course, it was ever thus. Nobody should be surprised to hear that the rich and powerful set the rules, and that these are not always to the benefit of the poor. But within nation states this dilemma is partly addressed through the political process. Universal suffrage has made it impossible for national institutions, laws and regulations completely to ignore the interests of the poor; though of course there is still a long way to go before the interests of the poor are given the attention they deserve.
But the international system does not benefit from the equal representation implied by universal suffrage within nations. In some international institutions, power is formally one-dollar-one-vote. In many others this is not the formal position, but it is true in practice. The global political system does not rebalance economic power between nations in the way that political processes can within nations.
To address Paul Collier’s four traps will require concerted international action – for example, to take steps to prevent the corruption and patronage that is associated with extraction of natural resources, to limit the sale of arms which fuel conflict, or change trade rules in ways that improve Africa’s prospects of trading with the rest of the world. That is why the trap of “unfair rules” is so profound: for as long as Africa remains politically weak in the international system, it is hard to envisage how the international cooperation is required will be brought about.
I find it hard to see how a transformation can be brought about unless we find a way to address the problem “unfair rules”. For as long as Africa remains economically disadvantaged, it is marginalised in the setting of rules and governance of global institutions. This in turn profoundly affects its ability to escape Collier’s four traps, and so limits its prospects for development, and thus locks in the growing divergence from the rest of the world. Africa seems to be likely to be caught in the jaws of this trap for as long as there is no political process that allows African countries to obtain more power and influence within these international institutions than their relative economic weaknesses entails.
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.
Last month the OECD published aid data from donors for the period up to and including 2007. With my colleagues at Development Initiatives, we have done an analysis of the figures for the House of Commons International Development Committee. The full memorandum (as .pdf) is here.
Here are some key points:
- Donors promised to increase aid by 2010. Half way to that target, if donors had been increasing aid at a constant rate to meet their commitments:
- Global aid in 2007 would have been $18.4 billion higher
- Over the last three years donors would have spent an additional $29.5 billion
- This would have lifted approximately an extra 15 million people permanently out of poverty. - The G7 also promised in 2005 to double aid to Africa. Half way to that target:
- G7 aid to Africa has increased by only $3.3 billion, less than a sixth of the promised increase.
- If aid had been increased at a constant rate towards the target, aid to Africa would have been more than $6 billion higher in 2007. - It is becoming clear that Italy, Germany, Portugal, Greece and France are not going to meet their promises
- The financial crisis is a potential “quadruple whammy” for developing countries. The value of the existing aid commitments has fallen (because they are expressed as a share of GDP), donors are increasingly unikely to meet those commitments, the financing needs of developing countries have been increased by the downturn, and there will be be substantial declines in non-aid flows to developing countries such as foreign direct investment, remittances, and equity investment.
In industrialised countries the fiscal “automatic stabilisers” tend to increase spending in recession, which both dampens the macroeconomic effects of the downturn and channels additional funding to services that face additional costs. By contrast the institutional arrangements for providing finance to developing countries tend to mean that finance is reduced just as needs are increasing, which amplifies the economic downturn, increases economic instability and jeopardises poverty reduction and service delivery.
Because everyone is so concerned with the financial situation, little attention has been paid to the other aspects of the World Bank and IMF meetings last weekend.
The Development Committee Communique says:
An additional Board seat for sub Saharan Africa on the Bank’s Board will be created. DTC voting shares in IBRD and IDA will increase, giving special emphasis to small members. … There is considerable agreement on the importance of a selection process for the President of the Bank that is merit-based and transparent, with nominations open to all Board members and transparent Board consideration of all candidates.
These are very welcome steps towards making the World Bank more accountable; but they are small steps so it encouraging that the communique refers to further reforms to come. (Bank President Zoellick has established a new High Level Commission chaired by Ernesto Zedillo to look at improvements to governance.)
I suspect that there is an inwardness to the phrase “there is considerable agreement on the importance of …”. This looks to me like a carefully-chosen form of words that masks a failure to agree stronger language that would firmly commit the Bank’s shareholders – particularly the United States – to an open competition for the Bank’s President in future. Nonetheless, it is a step forward.
Not according to Blake Lambert and Wendy Glauser who write about Canadian NGOs:
Part of the reason NGOs have difficulty meeting their overall goals is that they often end up measuring day-to-day results rather than long-term progress. As Andrew Mwenda, a Ugandan journalist and political economist who’s currently on fellowship at Stanford University, puts it, they measure “inputs rather than outputs.” If an NGO is planning to free up women’s time from domestic labour, for example, instead of measuring how much time they are spending cooking and cleaning, they might typically count how many women attended their last job-training session. “An NGO will say it’s trained 50 farmers in agricultural techniques,” Mwenda says, “but it won’t say whether that has led to an increase in production.”
I don’t think this is a problem confined to NGOs. The problem that many NGOs share with us in government is that there is no feedback loop from those whom we are supposed to be helping. Our accountability is to our donors (or taxpayers) who do not have first hand knowledge of whether we are delivering what we should.
More at Blake Lambert’s blog.
The Government has consistently refused to set up a statutory inquiry into the way that many thousands of haemophiliacs were put at risk by the supply of contaminated blood products. (The new inquiry by Lord Archer of Sandwell is an independent inquiry, not a government inquiry, and has no powers to subpoena witnesses or evidence.)
But it announced yesterday that there will be an official inquiry into the alleged removal of human tissues from the bodies of former Sellafield employees.
I just don’t understand this obsession with the treatment of dead bodies. Dead bodies don’t have rights. I really don’t care if human organs are taken out of dead bodies. What’s more, if these body parts can be used to identify causes of and cures for disease, then I think we should encourage scientists to use them.
How can we possibly think it is more important to investigate what happened to dead bodies than to find out whether somebody has negligently infected living people?
Among some bloggers (such as Tim Worstall), and now on the BBC, it is becoming fashionable to say that Nicholas Stern's analysis of the economics of climate change overstates the case for intervention to prevent climate change, because it overstates the value we should attach to the income of future generations.
In simple language, the claim is that Stern does not properly take into account the principle that an extra pound of consumption is worth less to you as you get richer. This means that future generations – who are expected by everyone to be much richer than we are – will value an extra pound of consumption less than we we will. If you take account of this, we should attach less weight to the possible costs to future generations when we compare those to the immediate costs of making the adjustment. (For a technical version of this critique, you may want to read this piece by Byatt, Castles, Goklany, Henderson, Lawson, McKitrick, Morris, Peacock, Robinson and Skidelsky.) I am undecided on whether this is an important weakness in Stern's account, and I wish that the report had contained a more systematic analysis of the sensitivity of his conclusions to different assumptions about discount rates (there is some of this in the new Technical Annex to the Postscript).
But even if you do conclude that Stern overstates the case for action now to prevent future costs, there is an important distribution effect that is masked by the aggregate numbers that Tim Worstall and others quote. The likelihood is that the main beneficiaries of the anticipated economic growth will be in rich countries, as they have been through the twentieth century, while the costs of climate change will be borne disproportionately by the poor. If it turns out, as predicted, that agricultural productivity in Niger collapses as temperatures rise in sub-Saharan Africa, leaving 12 million people with nothing to live on, it will be little consolation to them that people in Western Europe and North America are living much better as a result of the economic growth that the high carbon consumption has permitted.
So this is the challenge to those who take the view that the overall numbers do not make the case for action against climate change: are you prepared to support the massive transfers in resources that will be required from those who enjoy the growth to those who suffer its consequences?
Here is my ha'porth, for the record.
It is no excuse to say that your religion requires you to discriminate against gays. We would not tolerate the same argument to justify discrimination against people on grounds of race.
Nor is it a defence for the churches to say that it is OK for them to discriminate because there is another agency that does not. As somebody said, it is like telling Rosa Parks that she should get off the seats-for-whites-only bus and wait for the fully integrated bus coming along behind.
This is not mainly a point about public services and public funding. As Evan Harris MP points out, there is a problem with contracting public services out to "third sector" organisations if they then expect to be able to impose their prejudices on how those services are delivered. But even if the churches were delivering these services at their own expense, they should not be allowed to discriminate against blacks, gays or anybody else.
Frankly, I'm amazed that this is even a matter of public debate.
The World Bank's Independent Evaluation Group has launched its Annual Review of Development Effectiveness. It is an honest, and somewhat depressing, account of what the Bank has achieved. According to the Washington Post:
Among 25 poor countries probed in detail by the bank's Independent Evaluation Group, only 11 experienced reductions in poverty from the mid-1990s to the early 2000s, while 14 had the same or worsening rates over that term. The group said the sample was representative of the global picture.
"Achievement of sustained increases in per capita income, essential for poverty reduction, continues to elude a considerable number of countries," the report declared, singling out programs aimed at the rural poor as particularly ineffective. Roughly half of such efforts from 2001 to 2005 "did not lead to satisfactory results." During that period, new World Bank loans and credits aimed directly at rural development totaled $9.6 billion, or about one-tenth of total bank lending, according to the group.
Comment: I suspect that many people will use this report to confirm their prejudices. If you are an aid sceptic, and you do not read the report carefully, you might conclude that this shows that the money spent by the World Bank is wasted. But this is not what the evaluation finds. It finds that many reforms of development assistance that are being implemented around the world are likely to be effective. The evaluation finds:
- growth alone is not enough: growth delivers poverty reduction more effectively when it occurs in sectors and regions where most of the poor live and work;
- satisfactory project outcomes alone do not ensure country sector impact: what matters is the long term development of in-sector and cross-sector strategies that complement each other;
- pressure to show results quickly can divert attention from the quality of results;
- achieving and maintaining results requires public sector institutions that are accountable to domestic stakeholders, not donors;
- the long time required to achieve many of the intended results underlines the importance of continuity and predictability of donor engagement;
- results depend on the commitment and ownership of recipient governments.
These recommendations are consistent with the progressive aid agenda, increasingly being implemented by the World Bank, DFID and some other development agencies. It is, however, an agenda that is sometimes under attack from sceptics of government aid, many of who minstead recommend a project-based approach, in pursuit of short-term, more measurable targets. This so-called bottom-up approach is often at the expense of the long term, cross-sectoral institutional improvements that really drive sustained and systemic change.
Finally, kudos to the Bank for publishing a thorough warts-and-all analysis of its weaknesses as well as successes.
More from Ezra Klein, Washington Post.
Very interesting debate in this month's Prospect between Hilary Benn (Britain's Cabinet Minister with responsibility for International Development) and Bill Easterly, a critic of government aid.
For me, the money quote from Hilary Benn is this:
All functioning governments have essential features in common: a capacity to do things, good financial and information management, clear lines of accountability and freedom from corruption, to name just a few. We owe it to the world’s poor to help their governments to develop these capacities. Strong economic growth and fair trade are simply the fastest and most effective ways to get people out of poverty, and both of these require governments to work properly.
Muhammad Yunus and the Grameen Bank have been awarded the 2006 Nobel Peace Prize.
This is a powerful statement by the committee (which is appointed by the Norwegian parliament) of the role of poverty reduction in promoting peace.
As the Grameen Bank has shown, access to financial services such as credit can make a huge contribution to improving the lives of the poor.
Microfinance has become a very popular cause in international development, especially among the large private foundations of North America. Supporting microfinance appeals to the notion that we should give the poor a hand up, not a hand out. It appeals to our sense that we should find ways to unleash the entrepreneurial spirits of those who are unfortunate enough to have been born in poor countries.
But there remain important questions about microfinance. There remains very little systematic empirical evidence of the impact of microfinance on the incomes and well-being of the poor. Grameen's main measure of its success – its repayment rate – is impressive but tells us little about what impact microfinance has actually had.
In my view, it is impossible to argue with the view that the poor benefit, probably substantially, from access to affordable financial services, including credit, savings, insurance and remittances. But as I argued here in November last year, it does not follow at all that it is a good idea for donors and foundations to subsidize microfinance. After all, the Grameen Bank was developed without donor assistance.
So many congratulations to Muhammad Yunus for his well deserved award, and to the Nobel Peace Prize committee for recognizing the power of economic growth in poor countries to promote peace. But let's think carefully before we all climb on to the microfinance bandwagon. It is not clear that subsidizing microfinance is a high priority for helping the developing world to grow its way to prosperity.
More at Pienso, Marginal Revolution and NextBillion. Update: Also Mark Thoma, Audemus
Nick Kristof has a review in the current New York Review of Books of recent books by Jeff Sachs, Bill Easterly, Ruth Levine, Robert Calderisi, David Leonard & Scott Straus about the effectiveness of aid.
Coincidentally, G and I went to a presentation by Bill Easterly this morning, here in London to promote his new book.
I agree with Easterly that:
- we need a range of entrepreneurial, small-scale activities to innovate and test new ideas;
- we need more thorough and independent evaluation of aid; (see here for an analysis of the evaluation gap)
- aid should be more accountable to the people it is intended to help;
- we should stop interventions which do not work;
- and we should scale up interventions which do.
But I also fundamentally disagree with Easterly:
- there is abundant evidence that more aid is positively correlated with growth in developing countries; Easterly cites a misleading sample of technically inadequate papers to the contrary;
- we need planners as well as searchers: once good ideas have been developed and tested, they should be scaled up and this requires coordinated plans;
- the country-led approach which Easterly derides has not yet been fully tested, but early indications are positive. The forty years of failure which he criticizes were years in which donors pursued aid interventions much more like those he advocates than the policies they pursue now.
Finally, none of the books that Kristof reviews does justice to the role of the private sector in development. We need to understand better the range of policies and interventions that would help to foster private sector development, and not stifle it.
A new paper by Jorg Faust at the German Development Institute looks at whether rich countries that have more accountable and democratic institutions have more development-oriented foreign policy:
… the results do support the main hypothesis presented here, namely that the level of democratic voice and accountability in OECD countries is one crucial factor explaining the variance of the overall quality of development promotion in those countries. Beyond, these finding also suggest that a rising level of democratic voice and accountability increases the overall coherency of these countries' foreign policies with regard to development promotion. … Rich countries with stronger democratic institutions produce foreign policies which are at the same time more compatible with the concompassing interests of the rich countries' society while at the same time more adequate to promote development in poorer countires.
This is an important finding. It is consitent with the view that policies pursued by rich countries which damage development – such as restrictions on trade, limits on migration, constraints on technology transfer, corruption or arms sales – reflect the power in those countries of special interest groups to protect and promote their causes at the expense of economic development in poor countries. As the rich countries become more democratic and accountable, so the voice of our collective interests in global peace and security and in global equity are more overcome those interest groups.
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