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.
Something about which I am not particularly bothered is the possibility that, if we give aid to a country to contribute to its school system or health clinics, the effect may be that the government chooses to spend less of its own money on these services, and instead to spend more of its money on something else which did not catch our eye, such as infrastructure or even defence. (This is a concern usually known in development circles as fungibility of aid – though see the pedantic footnote.)
One reason that ‘fungibility’ doesn’t bother me much is that I think that it is a good thing for a government to be able to choose (and to be accountable for) its own spending priorities. To govern is to choose, so if we want to encourage the emergence of capable, accountable and responsive states we should think twice before trying to limit the ability of a government to make choices over its spending priorities. I also think there is a reasonable chance that they are better informed about their priorities than we are.
But suppose you don’t agree with me, and you think that donors should try to ensure that when they give aid, the overall effect is to increase spending on the thing for which they have given the aid.
You have broadly two choices.
Option 1: you can give your aid as a project. You use your own procurement system, pay the contractor directly and check that the clinic has been built, or that the teacher has been trained. So you know that your money has built the school. (Right?)
Option 2: you can give your aid through the government, either through the finance ministry or through the relevant line ministry. They pay for the work to be done, and you can still check that a clinic has been built.
It may look at first like a no-brainer: the project seems to give you more certainty that your money has been used as you intended. But that superficial view is pretty much exactly wrong. There may be good reasons for preferring project aid in particular circumstances, but the ‘fungibility’ of budget support is not among them.
Under option 1 the government is still able to make its own budget allocations. So if you build a clinic the government can, if it wishes, reduce health spending to offset your project spending dollar for dollar. Now it can spend that money on defence, or the President’s palace, or any number of other things. When you ask for assurances from the finance ministry that it will not spend the budget on line items of which you disapprove, it will probably point out that none of your money is involved and that you should mind your own business. There is no way to compare actual health spending with what it might have been without your project, so you can never determine what impact you have had on the government’s budget allocations.
Under option 2, by contrast, the government budget is at least partly your business. You might employ staff to understand the budget allocations and to discuss them with the finance ministry and with line ministries. Before making your grant you seek assurances about the future trajectory of spending you think is important. You might obtain assurances that spending on social services will continue to rise from one year to the next, if that is what you think should happen. If the government decides to spend money in ways you think unwise, or worse, you have some standing to have a conversation with the finance ministry and to ask it to reconsider, or even to make your aid conditional on the overall budget allocations (for example, donors attempted to constrain the growth of Uganda’s military spending in this way).
Here is an example of how our normal assumptions about fungibility can mislead us. A USAID assessment of Mozambique alleges that, “more than $100 million of donor funds were used in 2001 to bail out the failed privatization of the Commercial Bank of Mozambique (BCM)”. Let’s think about what this means. In what sense were ‘donor funds’ used to bail out BCM, rather than the government’s own revenues?
This assertion seems to require us to speculate that if the donors had not given aid to the government, the government would not have bailed out BCM. But is there any reason for thinking that if there had been no aid at all, the government would have felt obliged to spend its own resources on health and education first, instead of the bank bail out? Or would it have bailed out the bank just the same and provided fewer schools and clinics? And if all the donors had run health and education projects themselves, instead of giving aid to the government, what would the government have done with its budget savings in these areas? Would it not have used the money for the bank bail out?
The (explicit) claim that donor money was used for the bail out, and the (implicit) claim that this could happen because the aid was provided through the government budget rather than as stand alone projects, both seem doubtful. The bank bail out would probably have happened anyway: in which case the effect of aid was that there was more provision of health and education services than there would otherwise have been. If so, then in ordinary language we would say that donor funds were used for heath and education (not for the bail out) because that’s the difference the aid made.
Furthermore, in this particular case, the fact that the donors were mainly giving budget support almost certainly resulted in higher spending on social services than if they had been giving only project aid. The donors giving budget support had robust discussion with the government of Mozambique about its plans to bail out the banks, and thereby perhaps limited the resources used for the bail out. If the donors had been giving all their aid through projects, they probably would have not been able to have that conversation at all. If budget support gives the government less room to reallocate its spending because donors have more influence, this suggests that aid provided through the budget is less ‘fungible’ than aid provided as projects.
Whether or not you agree with these judgments about what might have happened in Mozambique, the example shows that our talk about ‘fungibility’ is somewhere between meaningless and irrelevant. We ought to be concerned about whether the clinics or schools got built. We can observe these outputs equally well whether we give project aid or budget support. We get into a mess when we start to speculate about what would have happened in an alternative universe in which we did not give aid, or in which we gave aid in some other way, which is what concerns about ‘fungibility’ invite us to do. We can’t predict whether those outputs would have been built without us, irrespective of whether we give project aid or budget support. Nor can we predict what would have happened to the rest of government spending whichever way we choose to give our aid.
Any statement about ‘fungibility’ requires us to compare the real world with some hypothetical world in which we did not give aid or in which we gave aid in some other way. Whatever we do to improve public financial management in the real world does not solve the problem that we can’t audit the hypothetical world. Even if we had perfect information about the real world – which is what we try to approximate by running our own projects – that wouldn’t tell us more about the alternative world, so it wouldn’t reduce the uncertainty about ‘fungibility’. If you are concerned about fungibility, greater use of stand alone projects is not a rational response.
If we are concerned about how the rest of government spending is allocated, the best way to have some influence is to give some of our aid through the government. Then at least donors can have a conversation with the government. (This isn’t merely a theoretical point. It actually happens. The US tends to be less influential over government budgets and public financial management in developing countries than other donors because it normally provides project aid.)
There are countries in which public financial management systems are incomplete and weak. In those environments we are inclined to be especially careful that the aid we give is used for the purposes we intend. It is common to assume that providing aid as a project makes it less fungible, and so less susceptible to being used to finance spending which is not consistent with our priorities. But this is nonsense. Governments can use the fiscal space created by aid equally well whether you give aid as a project or through government systems; when you give project aid you shut your eyes to the problem, but it doesn’t go away.
Pedants’ corner
Though this issue is usually known as fungibility of aid, to be pedantic the correct label is liquidity of aid since the concern is that aid may substitute for a different asset – namely domestic revenues – rather than another unit of the same asset.
The latest edition of the Development Drums podcast is now online. It was the last one I recorded before leaving Ethiopia.
Deborah Brautigam, a scholar renowned for her work on China-Africa relations, discusses her book, The Dragon’s Gift: The Real Story of China in Africa.
There has been a lot of nervousness about China’s growing engagement in Africa, especially among traditional donors; this discussion may make you think differently.
You can listen to Development Drums on your computer at the website or download it to your MP3 player. You can also subscribe free of charge to Development Drums on iTunes.
If you enjoy Development Drums, you may also enjoy the Center for Global Development’s Global Prosperity Wonkcasts, which are shorter and snappier than Development Drums. You can listen online, subscribe to the feed or subscribe free on iTunes. The Guardian newspaper also has development podcasts (feed & iTunes).
Someone working on the budget process in a developing country contacted me with the following question:
I noticed in your most recent post you mention that you are a budget wonk. I am currently working in [the budget section of an African government] as an ODI Fellow … But there is no formal training and no-one who can recommend useful reading on budgeting processes. I wondered if you had a reading list on budgeting that might be helpful? This could be anything from basics to more advanced material.
There is actually a lot of material out there, but it isn’t really all brought together in one place very well. Here is what I suggested:
- the World Bank’s Public Expenditure Management Handbook is a good starting point, but it is a strangely apolitical document that does not do justice to the politics of the budget process.
- That can be remedied with Legislatures and the Budget Process: the myth of fiscal control by Joachim Wehner.
- Allen Schick’s paper, “Why most developing countries should not try New Zealand’s Reforms” (updated link and corrected title) is a classic which should guide us when we think about the budget process in developing countries.
But perhaps I’m out of date. What do you think an ODI fellow working on the budget process in a developing country should read?
(And is it OK that we are sending ODI Fellows to developing countries to work on the budget process without some formal training, or at least a reading list?)
Michael Woolcock sent me this excellent quote from Thomas Paine:
When it shall be said in any country in the world, ‘My poor are happy; neither ignorance nor distress is to be found among them; my jails are empty of prisoners, my streets of beggars; the aged are not in want, the taxes are not oppressive’—when these things can be said, then may that country boast of its constitution and its government.
Thomas Paine, The Rights of Man
From La Vidaid Loca comes this excellent diagram which sets out the difference between what we are good at, what we want to do, and what is important:
Image from La Vidaid Loca
Hat tip to Stephen Jones.
It seems like only yesterday that we moved to Ethiopia, but our three years has come to an end. Without wanting to be too sentimental, I have loved getting to know Ethiopia better and especially its people, culture and history. (I won’t be sorry if I never have to eat injera again, however.) I’ve visited Ethiopia regularly over the last thirty years, and I have seen unbelievable changes in that time, almost all for the better. I’m looking forward to returning soon.
Several of you have been kind enough to enquire what I’m doing next. This blog post comes from Washington DC, where I am starting this week my new role at the Center for Global Development as Senior Fellow and Director for Europe. It is announced on the CGD website today.
My job is to step up CGD’s engagement with the European development community; to figure out how we can better tap its expertise and experience to develop practical policy ideas for industrialised countries which matter for the world’s poor; and to promote the adoption of development-friendly policies by European institutions and member states and the global community as a whole.
I’m excited to be returning to CGD. They are smart people, serious about their work (but not too much about themselves) with a sense of fun. In a short ten-year history CGD has been extraordinarily successful at coming up with important and practical policy ideas and seeing them implemented. In the coming months I’m going to be thinking about how we can do more of this in Europe. But I’m also going to try to learn how Nancy Birdsall manages CGD so successfully and to learn more about the leadership, systems, and values which makes CGD such a great place to work.
There are two reasons I think we need more of CGD’s approach in Europe, and why it is distinct from anything we have already.
First, there is more to development than aid. I am a supporter of aid: I think it demonstrably makes a vast difference to people’s lives, by providing them with key services such as education, health and water. But I’m not sure that aid makes an important difference to how quickly a country develops. For that, I think we need to look elsewhere: to non-aid policies like progress on trade, investment, fighting corruption, tackling climate change, sharing tax information, reducing conflict and improving the sharing of technology and ideas. CGD has, from its very beginning, looked at all these ‘beyond aid’ issues (most notably in its Commitment to Development Index) in a more rigorous, evidence-based and practical way than any other organisation. Think tanks and NGOs in Europe are almost universally focused on aid or on the policies of developing countries – I suspect mainly because that is where the money is. But that means we are not doing enough to analyse ‘beyond aid’ issues and to identify practical policy ideas for rich countries which might be as important, or more so, for the development of poor countries.
Second, as a citizen of a rich country, I want to focus on the policies of rich countries rather than lecturing poor countries on what they should do differently. I do understand that many of the problems of developing countries originate there: especially in the form of poor leadership, corruption and conflict. I’m very glad that developing countries, individually and collectively, are making progress on addressing many of those issues. But I’m sceptical that there is much we can do from outside to accelerate that, and there is a good chance we might make things worse. As a British citizen, it seems to me I have both most legitimacy and most leverage trying to sort out the things that are ours to fix – such as our trade rules or our impact on climate. Again and again we fail to take account of how our policies create obstacles for development, or fail to help developing countries. I suspect that this is often caused by ignorance rather than malice. When there is so much that could be better about our own policies, I’m not completely comfortable travelling around the world advising foreign governments on how they should organise their education system or manage their agriculture. I know that some of the needed policy changes in rich countries are not straightforward, but they seem to me far less difficult than the kinds of challenge we routinely expect developing countries to tackle.
On a personal note, G is moving to a new role in Marie Stopes International, based in London; and they have agreed that while I’m here in Washington she can work half the time based here. So we’ll be spending some of our time together in DC, and some of our time in Europe.
I believe there is much more that we in rich countries could do to accelerate the end of global poverty. The combination of CGD’s professionalism, values, and its gift for developing practical policy ideas, combined with a European development perspective and expertise, could be a great force for good in the years to come.
I’m now at my desk in Washington DC, though of course I’ll be spending a good deal of time in Europe. If you’ve got ideas for how to broaden and deepen CGD’s approach in Europe, please do get in touch.
Using a headline I borrowed from a smart colleague in DFID, there is an article by me in the current edition of the Public Service Review, which focuses on on international development. You can download a PDF of the article here.
My article begins with a quote from Brian Eno:
We expect that the next big thing will be a bigger version of the last big thing. What we don’t expect, yet what is most likely, is that the next big thing won’t look important to us at all – until it’s so important that we can’t ignore it.”
Brian Eno, Prospect, 26th November 2010
There are some interesting articles elsewhere in the same edition looking at the role of the private sector in development, and a rather eclectic mix of other articles.
I’m back from holiday, so here is the promised second of a pair of posts reflecting on three years of working on aid transparency. In the first post I talked about eight lessons mainly about why different kinds of aid transparency are important. In this post, I’m going to look at the next steps, particularly focusing on how we can provide meaningful transparency for citizens in developing countries.
There is a lot of detail below, so for busy readers here is a summary of the proposed ten steps for aid transparency.
1. Donors cannot achieve meaningful user-centred transparency just by putting project data on their websites. Users need information which comes from many different organisations simultaneously. Yet it is not realistic to try to maintain lots of different manually-updated databases which collate information for users. The answer is for organisations to publish online all the information they have about aid projects and programmes, in a common, reusable format, which can then be used as the basis for user-centric databases and applications. The International Aid Transparency Initiative (IATI) is the best chance for a generation of creating such a public infrastructure for information about aid. All donors, foundations, international organisations, NGOs and aid contractors should implement the IATI standard as the key first step to meaningful, user-centred aid transparency.
2. Any organisations which do not implement IATI voluntarily should be pushed to do so by the organisations and people who fund them. For example, official aid agencies should require every organisation to whom they give a grant or contract to implement IATI as a condition of handling public money. Citizens should refuse to put money into a collecting tin if the charity is not implementing IATI. Governments should consider making IATI compliance a precondition for charitable status and tax relief. Developing country governments should make IATI compliance a precondition of local registration by international NGOs.
Google has a policy that it should eat its own dogfood
3. Donors, foundations and NGOs should ‘eat their own dogfood’ – that is, any information on their website and any analysis and data that they publish about aid should use be based on the publicly available data infrastructure. This will give the organisations an incentive to ensure that the information they make available through IATI is up-to-date, comprehensive and accurate and that the system is fit for purpose.
4. Once donors and foundations are (a) publishing their data through IATI and (b) using IATI for their own websites and analysis, they should consider (c) helping other users, especially in developing countries, to make the best use of this information. But donors’ priority should be getting their own house in order by publishing their information in a reusable format, since this is something only they can do, and using that public data infrastructure themselves, before they help others to do so.
5. One of the highest priorities for new information about aid is that all aid spending should be classified in future according to the recipient country budget classifications as well as agreed international classifications. The Technical Advisory Group for IATI should agree the mechanism for this as soon as possible.
6. It seems so obvious that it shouldn’t need saying, but aid would clearly be more effective if we had more information about the future plans of donors, foundations and NGOs. Homi Kharas, in Measuring the Cost of Aid Volatility, estimates that the cost to aid recipients of historic unpredictability of committed aid flows is at least 15 percent. It could be much higher. Finance ministries, line ministries, the IMF, other donors, NGOs and the private sector would all do a better job with their money if they knew what was planned by others. Organisations should publish whatever they know about their future aid plans, generally (with some possible exceptions such as for procurement) at the level of detail they know it. This is likely to be the hardest part of IATI for many organisations, as few have mechanisms to keep systematic track of their forward spending plans.
7. A global system of traceability in aid, enabling money to be tracked from taxpayer to services delivered, via multiple layers of multi-donor funds, international and local NGOs and private sector contractors, is less difficult and expensive to implement than you might think. Traceability of aid would bring about a huge step forward in efforts to make aid more effective and less prone to corruption and waste, and for building public support for aid. Done right, it could also substantially alleviate the reporting burdens of aid recipients, NGOs and implementing agencies, and reduce donors’ costs of monitoring compliance. Priority should be given to implementing this part of the IATI standard.
8. Donors, foundations, NGOs and implementing organisations should start recording and publishing detailed geographical information about aid projects and programmes using the newly-agreed IATI standard format for geocoding of aid, and they should require their implementing partners to do the same.
9. Some donors and agencies have defined, or are in the process of defining, their own internal standardised output indicators. Organisations should now make a big effort to reach an international agreement on a common set of standardised ouput indicators to facilitate international comparability across organisations. This information can be reported through IATI.
10. When we connect feedback from citizens in developing countries to a rich public data infrastructure about aid, we will have a much more realistic inderstanding of the impact and effectiveness of aid. That day is coming sooner than most of us realise.
You will doubtless think me guilty of hyperbole when I say that the emergence of an open, international infrastructure for development information has the potential to transform the development business, much as the internet has transformed so much of our society, and for similar reason. I’m sorry that this is an absurdly long blog post, but I hope it will convince you of the amazing opportunities which are there if we seize them.
I’ve spent the last three years working on aid transparency. As I’m moving on to a very exciting new role (watch this space for more details) this seems a good time to reflect on what I’ve learned in the last three years.
This is a self-indulgently long essay about the importance of aid transparency, and the priorities for how it should be achieved. Busy readers may want to read the 8-point summary below. And for a very clear and concise introduction to the importance of aid transparency, take a look at this video by my (former) colleagues at aidinfo.
The 8-point summary
Here are what I think are the eight most important things I’ve learned in the last three years about transparency in general, and aid transparency in particular:
- To make a difference, transparency has to be citizen-centred not donor-centred.
Citizen-centred transparency would allow citizens of developing countries to combine and use information from many different donor agencies; and provide aid information compatible with the classifications of their own country budget. - Today’s ways of publishing information serve the needs of the powerful, not citizens
Existing mechanisms for publishing aid information were designed by the powerful for the powerful. Until the aidinfo team started 3 years ago, nobody had ever done a systematic study of the information needs of all stakeholders, including citizens, parliamentarians and civil society, let alone thought about how those needs could be met. - People in developing countries want transparency of execution not just allocation
There are important differences between the information requirements of people in donor countries and people in developing countries. Current systems for aid transparency focus mainly on transparency of aid allocation, because that is what donor country stakeholders are largely interested in, and not enough on transparency of spending execution, which is of primary interest to people in developing countries. - Show, don’t tell
Citizens in donor nations are increasingly sceptical of annual reports and press releases. In aid as in other public services they want to be able to see for themselves the detail of how their money is being used and what difference it is making. They increasingly expect to engaged, and are less willing to be passive funders leaving the decisions entirely to ‘experts’. Donor agencies – whether government agencies, international organisations or NGOs – will have to adapt rapidly to become platforms for citizen engagement. - Transparency of aid execution will drive out waste, bureaucracy and corruption
There is, unfortunately, quite a bit of waste, bureaucracy and corruption in the aid system. There is good evidence that this kind of waste is rapidly reduced when the flow of money is made transparent. Corruption and waste prosper in dark places. - Social accountability could be Development 3.0
The results agenda in aid agencies is currently too top down and pays too little attention to the power of bottom up information from the intended beneficiaries of aid. Increased accountability to citizens may be the key to unlocking better service delivery, improved governance and faster development. - The burden of proof should be on those who advocate secrecy
We have published a compelling business case for greater transparency, with all the uncertainties this kind of analysis entails. So where is the business case for secrecy, which would be far harder to quantify or defend? Why does nobody even ask for it? Why is the (inevitable) uncertainty in this kind of analysis allowed to count against the case for transparency, when the same uncertainty would deal a much greater blow against the case for secrecy? - Give citizens of developing countries the benefit of the doubt
Transparency is necessary but not sufficient for more effective aid. But the fact that transparency alone will not solve every problem should not be an excuse for aid agencies to shirk their responsibilities to be transparent. Nor should we be too attentive to vested interests in the aid industry telling us that transparency is not enough. Citizens of developing countries will be more innovative and effective than some people give them credit for when we give the information they need to hold the powerful to account.
That’s the summary. If any of that whets your appetite and you want the long version, read on. In my next post, I’ll look at the ten steps that development organisations should take towards aid transparency. Continue reading
A new edition of the Development Drums podcast is now available online. Malini Mehra from the Center for Social Markets and Alex Evans from the Center on International Cooperation at NYU take a step back and look at the broad sweep of the big development challenges of the 21st century.
Malini Mehra and Alex Evans discuss the big development challenges of the 21st Century in Development Drums 25
Alex Evans and I recently took part in a discussion of the big development issues with a committee of Members of Parliament in the British House of Commons. Alex kicked off that meeting with a magisterial and somewhat pessimistic presentation which set out ten key issues for development, and we took his presentation as our agenda for this discussion on Development Drums.
Malina and Alex are interesting and knowledgeable on a dauntingly wide range of issues, and the podcast covers a lot of ground: the changing distribution of global poverty; demographic change; the financial crisis; oil prices; food prices; feeding the 9 billion; climate change; trade; the changing face of conflict; the global governance deficit; and the implications for UK development policy. Each of these issues really needs an entire episode of Development Drums to be discussed properly, but I thought it was interesting to bring them all together to draw out common issues and ideas.
The following thoughts struck me from the discussion:
First – the importance of resilience which cropped up again and again in the discussion. I think this is possibly the Next Big Thing in development thinking (as if we need more Big Things). The idea is that we should be helping to develop the institutions and assets that ensures that people are resilient to shocks, of which there seem to be likely to be more.
Second – treating shocks as opportunities as well as risks. As Alex points out in the podcast, there was a narrow window after the collapse of Lehman Brothers during which we could have remade the global financial system: but nobody had a plan ready to go. There are going to be more shocks: will the progressive development community be ready to seize the opportunities these represent?
Third – the almost complete failure of global governance. All the issues we discuss relate in some way to the failure to put in place effective global processes and institutions to solve collective action problems such as on trade, climate change, or food supply. As Malini says, we are living in an era not of the G-8 but of G-0. Alex provides an interesting analysis of the problems in the podcast: on the face of it, to my mind, the problems don’t sound insurmountable.
Fourth – the optimism and energy coming from emerging countries such as India and China. Malina both describes and embodies this. But it’s also clear that on many issues – notably trade and climate change – the interests of these increasingly powerful countries are now diverging from those of the less developed countries, and we need to think hard about ensure the interests of the poorest countries are not left behind a grand bargain between the old and new rich countries.
Fifth – development policy isn’t mainly about aid. In a discussion which surveys the big development challenges confronting us, aid hardly gets a mention. Yet most of the development agencies in the world spend most of their time thinking about aid.
How to listen to development drums
You can listen to Development Drums on your computer straight from the website (http://developmentdrums.org) or download any episode (from here) to your MP3 player or computer. Alternatively, you can subscribe to Development Drums on iTunes free of charge (search for “Development Drums” in the iTunes store).
As is the Development Drums custom, the podcast plays out with a slightly relevant song. See if you can guess before you get to the end what it’s going to be (there’s a clue hidden in the title of the podcast, Episode 25: Global Development Challenges).
Other development podcasts
I find podcasts a convenient way to keep up to date, especially when I’ve got long plane flights or trips by road; and lots of people listen to them when running on the treadmill in the gym or during their commute.
If you enjoy Development Drums, you may also enjoy the Center for Global Development’s Global Prosperity Wonkcasts, which are a bit shorter than Development Drums. As with Development Drums, you can listen online, subscribe to the feed or subscribe free on iTunes.
The Guardian has also recently started a monthly development podcast. The most recent editions are about “securitisation of aid” (that is, greater focus of aid on fragile states) and on so-called “Land Grabs“. Again, you can subscribe to the feed directly, or get it free on iTunes.
Here’s a complete list of development podcasts:
- Development Drums
- The Center for Global Development Prosperity Wonkcast
- The Guardian Focus Podcast
- Think Before You Give
- BBC Africa Today
- Peterson Perspectives
- PRI: Global Health and Development
- The World Bank Podcasts
- Philanthropy This Week
- PRI: The Changing World
Other economics podcasts
Tim Harford (author, and FT leader writer) has just compiled a list of the best economics podcasts.
Development advocates have to make the case for aid and development policy. They are right to say that development is in the national interest of the donor, but it may be a mistake to put this at the centre of the argument. Most people don’t need to be convinced that development is desirable; they need to be convinced that aid works.
Development is in our national interest
It is increasingly the conventional wisdom that it is in the national interest of industrialised countries to promote development in the rest of the world. US Secretary of State Hillary Clinton made a speech saying so a year ago at the Center for Global Development:
… development was once the province of humanitarians, charities, and governments looking to gain allies in global struggles. Today it is a strategic, economic, and moral imperative – as central to advancing American interests and solving global problems as diplomacy and defense.
The UK Foreign Secretary, William Hague, also argues that development is a key part of Britain’s strategic and security interests (for example, here and here).
We’ve come a long way over the last twenty years. In January 1991 my father, then a British High Commissioner, sent a despatch to the then Foreign Secretary in London to mark the end of his last post in Africa, arguing that it was in the UK’s national interest to pay more attention to Africa’s development. His despatch said:
There is an overwhelming case on financial grounds alone for acting sooner rather than later, collectively, to provide the resources required for removing most of the debt burden from African countries (provided that they are committed to active economic reform), for arresting environmental degradation, and for restoring the physical and human infrastructure sufficiently to permit diversification of economic effort and its re-direction into areas that will eventually become self-financing – as well, incidentally, as making a more positive contribution to world economic activity.
At that time, the foreign policy establishment was very suspicious of any argument based on ethical or moral imperatives: it believed that foreign policy should be based on narrowly-defined national interests. In 1980 the Brandt Report had argued that it was in our “mutual interest” to pay attention to development and inequality, but in the decade that followed Britain’s aid programme, and our attention to developing countries, had declined. Twenty years ago, when my father was making a case for paying more attention to development based on our national interest as well as our values and moral obligations, his view was regarded as so subversive that the foreign office limited the circulation of the despatch. Today it is received wisdom which is regularly the basis of speeches by the US Secretary of State and the British Foreign Secretary.
We should celebrate the fact that there is, belatedly, recognition among policymakers that promoting development is in our national interest, as well as being the right thing to do. But I am concerned that we are letting the pendulum swing too far, by placing this argument at the centre of the public case for aid. We should use every argument at our disposal for doing the right thing, of course; but if we focus too much on aid being in our national interest, we are danger of undermining the effectiveness of aid and of failing to address the real concerns of sceptical citizens.
The nature of public doubts about aid
If I had a nickel for every time someone said to me, “I don’t think we should spend money helping starving people because I don’t give a toss about them,” I wouldn’t have any nickels at all.
The foreign policy establishment may have been sceptical about focusing on the ethical dimension of foreign policy, but the public never was. Neither the British nor the American people lack compassion for their fellow human beings. My father’s prescient efforts to awaken policymakers’ interest in development were made several years after Live Aid, which had showed that the public needs no lessons in generosity.
I readily concede that the public is often sceptical about aid. I have witnessed focus group discussions which anybody who is interested in development would find alarming, anyway at first. In such a discussion, the person who says “charity begins at home” will initially get lots of support. But as the discussion goes deeper, it turns out that they are sceptical not because of any indifference to the plight of others, but because they are not convinced that aid works. In many such groups you’ll hear Bauer’s famous remark that aid is “poor people from rich countries giving money to rich people from poor countries.” Many people are worried that aid ends up in the Swiss bank accounts of despots and dictators, or of corrupt consulting and construction firms. Yet when the same focus groups are given evidence of the benefits of particular aid programmes, their mood changes sharply, and they soon ask: “Why don’t we give more aid like that?”
The idea that “charity begins at home” clearly resonates with many people. In part the phrase expresses the idea that we have stronger social ties and obligations to people who live in our neighbourhood than we do to people on the other side of the world. But few people really believe, on reflection, that we should pay no heed to people dying of hunger or for lack of medical facilities just because they are far away. Perhaps “charity begins at home” resonates for another reason: we can observe at first hand whether the effort we make to help our family and neighbours is actually working, whereas with foreign aid we can’t, and we have a sneaking suspicion that this means that it isn’t.
The most popular critique of aid in recent years, Dead Aid by Dambisa Moyo, does not challenge aid on the grounds that the plight of the poor is not our concern. It is a poorly argued book in many other respects, but it would be wrong to accuse Dr Moyo of callous indifference. Indeed, all the famous aid sceptics, from P. T. Bauer to Bill Easterly, explicitly accept development as the objective: they simply question whether foreign aid is a good way to achieve it.
The dangers of relying on national interest
So perhaps the public does not need to be persuaded that development matters, but needs instead to be convinced that aid makes a difference. Even so, it seems reasonable to say that we should use every argument at our disposal for aid: we should appeal to the public’s self-interest as well as their moral values, and we should at the same time set out the evidence that aid works.
But there are two big risks to this approach which should lead us to think carefully about the balance of how we make the argument.
First, if we promote aid principally on the grounds that it supports our security and commercial interests, we should not be surprised when people expect that this is how aid should be used.
In the long term our national interest coincides with our moral urge to promote development and to reduce poverty. But in the short term there is often a trade-off between development and poverty reduction on the one hand, and our commercial, security and strategic interests on the other.
During the Cold War a huge amount of aid was wasted currying favour with despots for geo-strategic reasons and accordingly propping up failing industries and businesses. Even today, less than 40% of aid is spent in the poorest countries. This makes a kind of sense if your aim is to increase your influence in emerging economies and in fragile states like Pakistan and Iraq. There are many poor people in these countries, but all the evidence suggests that these are not the places in which aid is most needed and can do the most good. A significant portion of aid (though none of the UK’s aid) is still tied to firms in donor nations. This makes sense if the aim is to support the donor’s commercial interests but not if the aim is to have the greatest possible impact on the reduction of poverty. It is legitimate and proper for donors to want credit for their aid, to enhance both their international reputation and their image and influence in the recipient country. But this goal leads donors to give too much aid through bilateral aid programmes, on which their national flag can be stamped, and too little through more efficient multilateral institutions and other shared funds, resulting in unnecessary duplication, overheads and transaction costs.
We do not have institutions that can protect our long-term national interest in development and poverty reduction from the pressures to use aid to pursue these short-term strategic, security and commercial interests. In a world of short time horizons, our immediate interests tend to prevail over our longer-term goals. So the more we justify aid chiefly on the grounds of national interest, the greater the danger that our short-term national interest will dictate the way aid is used, with negative consequences for the effectiveness of aid and for our longer-term interest in poverty reduction.
If the public were unsure whether they cared enough about global development to give aid, then it might be worth deploying aid in ways which are most obviously in the national interest, even if that required sacrificing some of its effectiveness. (For many years, the Danish government justified tying aid to Danish suppliers on precisely these grounds.) But if the public is already convinced that development is important, and their doubt is primarily about whether aid is effective, then it makes no sense to use aid in less effective ways in an effort to win greater public approval.
The second reason why we should be cautious about focusing too much on our national interest when justifying aid is that we are in danger of setting ourselves up to fail.
Take an example which is, literally, close to home for me. School enrolment here in Ethiopia has risen from a quarter of all children fifteen years ago to more than four fifths of children today. About a third of Ethiopian children – 8 million boys and girls – are at school as a direct result of foreign aid. My house in Addis Ababa is a few hundred metres from the local primary school, so I see boys and girls going past my window to school every day.
If the British public could see as I do how their aid money is being used, they would, like me, be encouraged and touched by the good that aid does. This is a direct, demonstrable benefit of aid, and one which appeals to the British sense of justice and empathy for our fellow human beings. It would soften the heart of the hardest sceptic.
Kids going to school near my house in Addis Ababa. A third of Ethiopia's education system is financed by aid.
Why then is there such widespread doubt that aid works? In part it is because people at home cannot look out of their window and see it working. But it is also because we have made extravagant claims about what aid will do. Even if it is true that aid leads to faster economic development, and that it thereby reduces the risk of global health contagions, organised crime and drug smuggling, this would be impossible to demonstrate statistically. (It would be like trying to show that the EU has prevented war in Western Europe since 1945: plausible, very probably true, but unprovable.)
People are right to be doubtful about the validity of some of the more grandiose claims for what aid can achieve. Perhaps it seems too modest to say that we pay for millions of children to go to school, and for people to have access to clean water and basic health care. But this is a reality which we can prove beyond any doubt; and for most taxpayers it will seem well worth the modest amount of money we spend on it. And it is probable, even if unprovable, that all this works in favour of our own long-term interests as well.
The public and the politicians who represent them will inevitably devote only a modest amount of time to thinking about development. If we use up scarce bandwidth making an argument with which few disagree – that poverty matters – we waste the opportunity to make the argument of which they are yet to be convinced: that development policy and aid can and do make an important difference to the lives of the poor.
The aid that was used to prop up Mobutu in Zaire during the Cold War may have served a foreign policy interest, but it did little or nothing to reduce poverty and raise living standards in that country. Money used today to buy food aid may be a convenient subsidy for American and European farmers but if we bought the food locally we could feed twice as many people with the same money and at the same time support the growth of sustainable agriculture in developing countries. The more we use aid to support our strategic and commercial interests, the less effective that aid is likely to be in the fight against global poverty, in which we have an important long-term interest.
It is in our national interest to see faster development and the end of global poverty, and we should not be shy about saying so. But we should think twice before using this as the central plank of the case for more effective development policies and more aid. People do not need to be persuaded to care about global poverty: they do need to be convinced that there is something we can do about it. Just reminding them that it is in our national interest to promote development fundamentally misses the point. The more we defend aid mainly on the basis that it is in our national interest, the more likely it is to be bent to our short-term commercial and strategic interests, the more ineffectively it will be used, the harder it will be to demonstrate its benefits, and the greater the justification for public scepticism. Give the public some credit: they don’t need to be persuaded to care about poverty. Aid does work: and the first and most pressing task is to demonstrate to the public with persuasive evidence that this is so.
Like Chris Blattman, I’ve just been ‘interviewed’ by email by a journalist writing a series of articles about poverty. She wanted, by return, some answers to some pretty preposterous questions. My answers are below. I’m sure readers of this blog would have interesting answers, so please put them in the comments below.
1. It is realistic to think that poverty can one day end?
It depends what you mean by “poverty”. I certainly believe that it is feasible in the near future for everyone to have enough to eat; to have access to clean water; to have access to basic healthcare which prevents them from dying from easily preventable and treatable diseases; to have shelter and sanitation; for every child to go to school and for mothers to face low risks of dying in childbirth.
But poverty is also a relative idea; there will always be people who need help. We should plan to have permanent, well governed mechanisms of global solidarity so that those who are fortunate, wherever they may be in the world, can support those who are less fortunate, whoever they may be. We may hope that particular individuals will need help only temporarily, but we need permanent systems to ensure that they get it.
2. What are the best global solutions?
The countries of the rich world could do much more to create the conditions for poor countries to accelerate development. For example they could, at very little cost to themselves (indeed, with some benefit) improve trade policies and reduce agricultural subsidies to enable poor countries to trade their way out of poverty; permit greater migration from developing countries, so that the benefits of globalisation are more widely shared; adjust government-created intellectual property rights to enable poor countries to share the benefits of new technologies; close tax havens and clamp down on corruption, tax evasion and tax avoidance by multinational companies; open up detailed information about financial flows including aid, payments for extractive industries, defence spending, and climate change, so that citizens of developing countries can ensure that those resources are not squandered; create markets for environmental assets, especially by setting global carbon emissions ceilings and agreeing to equal per capita allocations, so that the rich world pays a fair price for their use of more than their fair share of the world’s natural resources; and reduce exports of small and large arms to the developing word.
As industrialised countries help create the conditions for developing countries to make faster progress, it will be for the people of the developing world to use their own ingenuity and hard work to develop social, economic and political institutions that enable them to make progress in their own way; but it is hard to imagine success that does not involve much greater investment in the rights and status of women.
3. How urgent is it to act?
Twenty five thousand people die each day of preventable and treatable diseases. If those people were citizens of Europe or America, we would have declared a state of emergency.
4. Do you believe there is hope for the future?
Of course: hope for the future is amply justified by the extraordinary progress which developing countries are making. The last fifty years has seen the fastest progress in human history on reducing poverty and improving living standards, from reducing malnutrition to providing access to clean water.
On the Oxfam blog, Max Lawson has an excellent guest post telling the story of how Malawi has used an extensive programme of fertilizer subsidies to generate seven years of economic growth, reduductions in poverty and child deaths.
Max cites a forthcoming paper by Andrew Dorward and Ephraim Chirwa (ungated version here). Dorward and Chirwa argue that:
Malawi’s agricultural input subsidy programme addresses a low maize productivity trap that leads to food insecurity and poverty, and constrains economic growth and, paradoxically, diversification out of maize and agriculture. This low productivity trap arises as a result of severe seasonal credit constraints affecting very large numbers of poor, food deficit farming families, together with thin and high risk, high margin input and maize markets. The key successes of Malawi’s subsidy programme arise where it relieves both affordability and profitability constraints to increased staple crop productivity from increased input use, and in doing this both raises land and labour productivity and improves food security for large numbers of poor households through some combination of increased real wages and reduced food prices.
The only part of Max’s post that I disagree with is his remark that ”we should leave our economic theory at the door and instead focus on what works empirically.” As Jonathan points out in the comments, economic theory tells us that government intervention may be an appropriate response to market failures. While recognising the success of the programme so far, we should not stop asking whether the same results could be achieved more cheaply and more sustainably with some other, even better approach.
A more relevant challenge is: why did some donors oppose this programme, and what have we (and they) learned from that error?
Dr Bingu wa Mutharika fought and won the 2004 election on a platform of guaranteeing food security. HIs proposals for a targeted subsidy was overturned by the Malawi Parliament in favour of a universal subsidy, which was introduced in 2005.
Election Poster for Bingu wa Mutharika
Donors are – on paper – committed to respecting government ownership and supporting the governments’ development programme. Yet despite clear national commitment, endorsed in a democratic election, donors generally opposed the introduction of fertilizer subsidies, consistent with the World Bank’s position throughout the 1980s and 1990s. The donors argued against the government’s proposed scheme because they thought it would be too expensive; it was insufficiently targeted on the poor; it would undermine private sector development; and because they doubted the capacity of the government to implement it.
When Malawi introduced its programme in 2005, the IMF and the US Government opposed it outright, on the grounds that it would damage the private sector. The World Bank, EU and UK Department for International Development adopted a more nuanced position: they argued that instead of a universal programme there should be “smart subsidies” which should be tightly targeted to reduce the costs, and that the programme should include an explicit exit strategy. DFID eventually supported the programme after extracting an agreement from the government that it would use private fertilizer suppliers. Some of the Scandinavian donors and UN agencies supported the programme from the outset, partly influenced by the apparent success of a local Millennium Villages Project.
The apparent success of the Malawi fertilizer subsidies is primarily a story about the Malawi government, not donors; though the scheme could not have been afforded, especially through the 2008 price hike, without donor funding. But it does give rise to two questions about donor policy and behaviour.
First, are donors still labouring under too simplistic a view of the role of government in the economy? Donors continue to be sceptical of agricultural subsidy programmes (which is rank hypocrisy, given the subsidies they provide their own farmers). This seems to be partly because we have an insufficiently rich analysis of the nature of the market failures and how they are best addressed; and partly because donors still suffer from the sustainability delusion, which requires them to oppose perfectly sensible government policies and programmes for which there is no identifiable exit. If the UK government were only allowed to implement inherently time-limited policies there would be no National Health Service.
Second, how should donors reconcile their own views of a policy with their commitment to respect country ownership? Donors are committed to support developing countries’ own development strategies. But what happens if they disagree either with the thrust of those policies, or with particular details? Should they refuse to finance them? Should they act as “critical friends”, identifying the shortcomings of the policies and seeking to get them changed? Should such opposition be private or public? How is that consistent with respecting country ownership? If they do try to change the policy how are they held to account when – as was apparently the case in Malawi – they are wrong?
I’d like to suggest two ways in which donors can better respect country ownership. First, where they have an opinion about a policy, they should produce publicly their analysis and evidence, to allow this view to be discussed as part of the public debate, rather than exert political and economic power behind closed doors. Second, there should be a version of the Salisbury Convention in aid: if a government is pursuing a policy for which it has an explicit mandate in a reasonably democratic election, the donors should not try to undermine it.
UPDATE: Smart commenters below ask two questions. First, is it premature to say this has been a success, until we have a year of bad rains? Second, were the donors as hostile as my blog post suggests? If you have insight into either question, please leave it in the comments below.
Here is part of my piece on the Guardian website today welcoming moves from the US and Europe towards a global standard for publishing aid information:
Go to the website of any aid agency and you’ll find a cornucopia of information about the good work that it is doing. The problem is that it doesn’t publish this information in a usable form. Visibility is not the same as transparency.
Members of the US Congress rightly complain that they cannot get a complete picture of US foreign assistance, which is delivered by 26 government agencies. As Congress has discovered, to get a complete picture of what the US is doing you need up-to-date, comprehensive data from each aid agency in a common format that enables it all to be added up, reconciled and compared. It is very welcome that the US government is putting a system in place to do this.
Now put yourself in the shoes of ministers or parliamentarians in a developing country. They face the same problem as members of Congress, writ large. Aid to their country is channelled through bilateral aid agencies, multilateral organisations and thousands of NGOs. Aid goes from one organisation to another – minus a “haircut” at each stage – before any services are provided to anyone. How can officials or MPs get useful, up-to-date, comprehensive information about all this spending and all these activities? Certainly not by trawling through thousands of separate donor websites.
A perennial question in development economics is whether economic growth, by itself, is enough to reduce poverty.
The question came up in the most recent edition of Development Drums. Claire Melamed argued that the fact that so many of the world’s poor now live in middle income countries (which, by definition, have experienced a reasonable amount of economic growth) suggests that growth by itself is not enough to reduce poverty. Andy Sumner, in the same programme, said that there is some evidence that economic growth tends to increase inequality in societies that are already unequal, whereas the benefits will be more broad based in societies in which the starting point is more equal.
This graph by Maxim Pinkovskiy and Xavier Sala-i-Martin is very interesting. It shows the growth rate and the number of people living on less than a dollar a day in sub-Saharan Africa. The data are notoriously incomplete, but on the basis of these estimates, as the authors say (apologies for the econ-speak): “Poverty seems to co-move with GDP almost perfectly.”
Graph by Maxim Pinkovskiy and Xavier Sala-i-Martin
This graph implies pretty strongly that if you want to reduce poverty in Africa, you should concentrate on economic growth.
The entire article is well worth reading for its upbeat assessment about both growth and poverty reduction over the last fifteen years. They say:
The sustained African growth of the last 15 years has engendered a steady decline in poverty that puts Africa on track to meet the Goals by 2017. If peace is established in the Democratic Republic of Congo, and it returns to the African trend (which is what happened to other African nations that were formerly at war), Africa will halve its $1/day income poverty rate by 2013, two years ahead of the 2015 target.
Moreover, African poverty reduction has been extremely general. Poverty fell for both landlocked and coastal countries, for mineral-rich and mineral-poor countries, for countries with favourable and unfavourable agriculture, for countries with different colonisers, and for countries with varying degrees of exposure to the African slave trade. The benefits of growth were so widely distributed that African inequality actually fell substantially.
Andy Sumner has published a new paper which argues that the global poverty problem has changed because the countries in which most of the world’s poor liver are no longer classified as low-income countries (LICs). In 1990, about 93 per cent of the world’s poor people lived in LICs. Today, there are still about 1.3 billion poor people, but about three-quarters of them live in what are now classified as middle-income countries.
This shift has profound implications for development policy. It highlights the importance of ensuring that growth reduces poverty. It raises questions for the allocation of traditional aid, and about the legitimacy and effectiveness of intervention by outsiders to influence the distribution of income within other countries.
In a new episode of Development Drums, I discuss these issues with Andy Sumner and Claire Melamed (Head of the Growth and Equity Programme at ODI). We discuss what the new data tell us, and what it means for aid and development policy.
You can listen to Development Drums on your computer at the website (http://developmentdrums.org) or download it (from here) to your MP3 player. Alternatively, you can subscribe to Development Drums on iTunes free of charge (search for “Development Drums” in the iTunes store).
Shanta Devarajan asks if we have found Development 3.0
Shanta Devarajan, the World Bank Chief Economist for Africa, describes in an important new blog post the evolution of development policy in terms of changing ideas about market failures and government failures. In the 1950s and 1960s, he says, development was about addressing market failures by providing public goods, addressing externalities, and redistributing income to poor people. Starting in the 1970s, attention shifted to government failures such as weak capacity, rent-seeking, political patronage and corruption. Today, he says, many of the most egregious failures have been addressed, but the remaining failures directly hurt poor people.
On Shanta’s view, these failures arise from two kinds of imperfection in the public sector: that governments have difficulty monitoring and enforcing performance (leading to absentee teachers, clinics without drugs, etc) and imperfections in the political system which prevent it from serving the poor.
Shanta says that changes in technology and the rise of civil society can change all this:
Our understanding of government failure has coincided with two other developments. One is the rise of civil society’s voice in public discourse. The second is the technology revolution in poor countries. There’s a message here. Can we use technology and the voice of civil society to address these government failures? Rather than imposing conditions, we can empower poor people to monitor service providers. With some 80 percent of Africans having access to a cell phone, it is not difficult to have parents (or the students themselves) send an SMS message if the teacher is not in school, or there are no drugs in the clinic or the purported road maintenance program is not happening. This could do more for helping governments and donors get value for money than all the fiduciary controls we put in place. While we are at it, why don’t donors (including the World Bank) use technology to have the beneficiaries monitor and supervise development projects?
Can this work? Is social accountability a new model for development?
There is increasingly good evidence that transparency and accountability make a significant difference, in some cases surprisingly transformational. There is an increasingly impressive collection of individual case studies, rigorously evaluated, which demonstrate the effectiveness of this approach. For example, Jacob Svensson and Martina Björkman conducted a randomized field experiment in Uganda to test the effect of increasing community-based monitoring. They found that when communities more extensively monitored providers, both the quality and quantity of health services improved, including reducing infant mortality by a third.
There have, however, been no significant comparative studies bringing this evidence together. Until now. Rosemary McGee and John Gaventa have just published an extensive review of literature and experience across the field. There is a lot of material to digest, but here is the core of what they find:
…there are a number of micro level studies, especially in the service delivery and budget transparency fields. These begin to suggest that in some conditions, the initiatives can contribute to a range of positive outcomes including, for instance,
- increased state or institutional responsiveness
- lowering of corruption
- building new democratic spaces for citizen engagement
- empowering local voices
- better budget utilization and better delivery of services.
Reading the study, my conclusion is that we know rather more about the impact of greater accountability than we know about what we can do to bring that accountability about.
I currently work on transparency, because I think makes an important contribution to the ability of citizens to hold governments and donors to account and so improve service delivery and accelerate poverty reduction. There have been some good examples of how this can work in practice, which are summarised in Appendix 1 of this cost benefit analysis for the International Aid Transparency Initiative (page 23 of this pdf; disclosure: I’m a co-author). The most famous example is this study of the impact of information on funds flowing to schools in Uganda which found a strong relationship between transparency and funds flowing to schools, though the evidence was subsequently challenged. So while there is increasingly good evidence to confirm the intuition that transparency plays an important role, we need to understand a lot better how, and in what circumstances, transparency works, and particularly to understand better what else needs to be in place.
One issue on which Shanta is clearly right is that role that technology can play in supporting greater accountability. We know that technology does not end poverty, but we are seeing more and more examples of how technology – especially mobile telephony and text – has enabled and supported changes from mobile banking to wholesale agriculture markets. Just as technology underpins changes in markets (think of newspapers, or bookselling), so it can underpin changes in political economy and social accountability.
So is this, as Shanta says, Development 3.0?
Development is a long, slow, uncertain process and the road is bumpy and winding. Transparency and accountability are not a one bound and we are free solution, any more than the ‘big push’ or the Washington consensus which Shanta labels Development 1.0 and 2.0 respectively. But this time there is an important difference. The ‘big push’ and the Washington consensus were blueprints for a better world. Social accountability, by contrast, does not start with a preconceived idea of how resources should be used or services should be delivered: it seeks to change the dynamics of the system to make it more responsive and more likely to converge by itself on solutions which better serve poor people in developing countries.
A big challenge will be whether development agencies themselves are able to adapt. Their models for project cycle management are based on a top-down view: you specify the world you are trying to create (the “goal”) and then you articulate a series of outputs and activities which you expect will bring this about. It will be a big change – intellectually, organisationally and culturally – to modify their systems, incentives and procedures to a world in which donors work instead to help the citizens of developing countries to determine their goals and priorities and build their own systems to achieve them.
If what Shanta is calling Development 3.0 means that instead of offering a one-size fits all solution we should work to close the broken feedback loop so that communities themselves can find the answer, then I think this may indeed be a change of perspective on development worthy of a major version number.
During the mass migration between the middle of the nineteenth century and the outbreak of the first world war, about a third of Europeans migrated from their country of birth, mainly to America. Today levels of migration are proportionately lower, because nation states have imposed much tighter restrictions on the movement of people than at any time in human history.
Earlier this year, Lant Pritchett and Michael Clemens laid down a challenge to development policy thinking:
Development is about people, not places; the development benefits of labor mobility are enormous; and the costs of greater labor mobility, sorely feared, are often exaggerated. The next step for global development policy might be to take labor mobility seriously as a powerful weapon in the fight to give all people on earth the same opportunities that most readers of this chapter now enjoy.
The benefits of migration for development
We know that migration can make a hugely important contribution to development. It benefits the migrants themselves, enabling them to increase their own incomes and lift themselves and their families out of poverty. It also benefits the countries from which migrants come, as Ireland and Norway found in the nineteenth century. Remittances to less developed countries are now about $325 billion per year, much more than $120 billion a year of official aid. These remittances, for the most part, go directly into the hands of low-income people and they rise faster than aid after natural disasters. Migration is also an important driver of technology transfer and knowledge sharing which contributes to long term economic growth. It can improve leadership and governance: two thirds of developing-country heads of state or heads of government studied and lived abroad before they returned to lead. Of the 21 cabinet ministers of Singapore, 20 have an advanced degree from outside Asia and almost all have extensive work experience outside Asia.
Economists have estimated that a relaxation of rich countries’ restrictions on temporary labour mobility of about 3% of their labour forces would raise developing country welfare by an amount roughly equal to total annual global aid flows (see here and here). The British government already knows this: the papers were co-authored by Alan Winters, now Chief Economist at DFID. Unlike aid, a small increase in labour mobility would cost rich countries nothing: on the contrary, it would cause their own economies to grow.
Why so little reaction to changes in UK policy?
Yet supporters of international development have been reluctant to take up the cause of increasing immigration, perhaps because it is politically unpopular in rich countries. (Michael Clemens at the Center for Global Development, and Sarah Mulley at IPPR stand tall as honourable exceptions to this generalisation.)
Fear of championing a politically unpopular cause might be why there has been little reaction in development circles to last week’s announcement of changes to UK immigration policy.
The new British stance is likely to have significant adverse effects on people in developing countries. Because free movement of people within the EU is guaranteed by treaty, the UK government can cut total migration only by clamping down on migration from countries outside the EU. Under the previous policy, people from developing countries faced implicit discrimination because of the “previous salary” provisions; now Tier 1 General immigration has been almost completely abolished, closing off one one possible route for immigrants from developing countries. The government has announced that it will sharply reduce the number of students coming from abroad. Students make up almost two thirds of the non-EU migrants entering the UK each year. More than 40% of the student visas are for study below degree level, which the government plans to end altogether. I have not been able to find a breakdown of the country of origin of these students, but it is a fair bet that the majority are from developing countries. The government also plans to end completely the link between temporary migration (eg for students) and the ability to settle permanently, and it is consulting about stopping post-study visas. All this is a very big deal for developing countries, both because it will reduce immigration from developing countries and because it will limit access to education and skills transfer.
I was struck that that the possible impact on development and poverty was not mentioned by any member of Parliament in the debate. Do MPs not know that this will have a significant impact on developing countries, or do they not care?
As well as being bad news for developing countries, the policy of reducing the number of students from abroad is also bad news for Britain – not just for educational institutions whose markets will shrink, but for the loss of lifelong connections that former students in Britain take away with them, with adverse effects for our reputation, influence and commerce abroad.
The impact on rich countries of immigration
Immigration remains a hugely sensitive political issue in the UK. Some people are concerned about the economic effects: on jobs and incomes, and increased demand for public services such as education, housing and welfare. These economic worries don’t stand up to scrutiny. The suggested impact on jobs relies on the mistaken idea that ‘there is only so much work to be done’ and that a job given to an immigrant is one fewer for someone else. Immigrants increase demand in the economy as well as the labour supply, so immigration will not, on its own, lead to an increase in unemployment. Nor does immigration reduce wages for native-born workers – on the contrary, the evidence is that immigration leads to a small but positive increase in wages resulting from increased demand. There may be some negative effects on the wages of low-paid workers, especially on the wages of previous immigrants; but given that the overall effect is positive, these distributional effects can easily be offset with appropriate tax and spending policies. On balance, immigrants make a huge contribution to the economy. Nor is immigration a drain on the public finances. A UK Home Office study estimated that immigrants paid in 10% more in taxes than they received in public services and benefits, compared to only a 5% ‘surplus’ for the UK-born population. A subsequent study by IPPR found that in times of deficit, immigrants made a small contribution to the deficit, albeit smaller than UK-born citizens. Either way, the effect on public finances is small. It suggests, however, that the government should be more agile about ensuring that spending on public services responds quickly to changing population patterns so that public services in particular communities do not come under pressure when there is a rise in the number of immigrants there.
Other people are concerned about the social effect of increasing diversity of distinctive cultures in our society. Providing reassurance about that is beyond my competence as an economist; but speaking personally I value living in a diverse society and dislike intolerance of difference.
I don’t want to be dismissive of the fears and concerns of the population about greater immigration, though the evidence suggests that the overall economic effects are positive. But even if there were negative effects, that would have to be weighed against the hugely positive impact for both the immigrants themselves, and for developing countries as a whole. We have obligations to other people, including those who did not have the good fortune to be born in the UK; and almost any other way of discharging those obligations will be more expensive to us than permitting greater migration, which is likely to be on balance to our advantage.
Recognising the impact on global poverty
I’m an optimist, but I’m not delusional: I know that concern about global poverty is not going to convince politicians to open the country’s borders in the face of domestic political concerns about immigration. But that does not mean that development advocates should surrender. If the government is determined to have a tighter immigration policy, let’s make sure that the details of the policy are development friendly. The business lobby has managed to persuade the government to relax restrictions on transfers within firms. If overall immigration is capped, and powerful lobbyists secure a relaxation of the kinds of immigration they favour, the burden of the reductions will fall on those who have little voice and nobody willing to speak for them.
The absence of any apparent interest in the development impact of this new immigration policy has convinced me that there should be a requirement on the government to publish a quantified poverty impact assessment of any policy proposals which are likely to have a significant effect on the people of the developing world, including immigration, trade, intellectual property, climate change, and arms sales. I don’t imagine that this would change policies overnight, but a requirement to produce and publish such an analysis might concentrate the minds of policy-makers and and their advisers on whether there are ways to adjust the details of the policy in a way which does less harm, and perhaps some good, for development.
Under the International Development (Reporting and Transparency) Act 2006, the UK Secretary of State for International Development is required to publish an annual report containing “such general or specific observations as he thinks appropriate on the effects of policies and programmes pursued by Government departments on (a) the promotion of sustainable development in countries outside the United Kingdom, (b) the reduction of poverty in such countries.” I hope that the Secretary of State, who has a strong personal commitment to transparency, will consider it appropriate to include in the next report observations about the effect on development and poverty of these changes to immigration policy.
Finally, Gideon Rachman of the Financial Times notes in his blog that the government’s new immigration policy won’t tackle the underlying problems that has made this a political issue. He concludes:
So, unable effectively to tackle the kind of immigration that actually upsets people, the British government is taking aim at the one group of migrants that are largely uncontroversial and that unambiguously contribute to the country’s well-being. What idiocy.
The Onion says that “the majority of people in Darfur are still unaware of how many people in America are raising awareness of the genocide there.”
I especially enjoyed the suggestions that we should start by airdropping press releases all over them, and that celebrities should have a big awareness-raising dinner in transparent tents so that the people of Darfur can stand on the perimeter, look in and see all the hard work that people are doing.
(H/T Good intents)
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