Owen abroad

Archive for March, 2007

One of the unconscionable practices in international aid is the “mission” – a team of experts from donor countries who fly out to the developing country to supervise the way that aid is used. For large aid projects, these mission teams – sometimes composed of eager but inexperienced development workers – will demand meetings with senior officials from the recipient country government, often including Cabinet-level ministers.

These missions are a major burden on developing countries. Each mission ties up many hours of ministerial and official time. The policies pressed on governments are often contradictory, lack evidence and have little or no legitimacy in local policital processes. That is why donors promised in the Paris Declaration on Aid Effectiveness to reduce the burden of missions.

Yet in the 18 months since that declaration there were 11,000 missions to 31 countries surveyed by the OECD – an average of about 350 missions per country per year. Each mission lasts about a week, so on average each country will have about 5 donor missions in country at any one time. This is a huge cost to the scarce administrative capacity of developing countries: costs which are imposed by well-meaning donors but borne by the recipient government.

The costs of missions can be thought of as a negative externality – which suggests that developing countries should adopt the polluter pays principle as a way to control the burden. Using the analogy of cap-and-trade in environmental pollution, developing countries could issue tradable missions permits. Here is how it could work:

• Developing countries would each decide how many donor missions they can absorb in total each year. Suppose that a country decides to accept 50 donor missions a year (a seventh of the number they now receive on average!). The government would then issue 50 tradable missions permits, which they would sell to donors in an online auction.
• Development agencies designing aid programmes that require a donor mission would have to include in their budget the cost of buying one of these permits, either in the auction or in a secondary market. This would mean that the budget of the aid project would include explicitly not only the cost to the donor of providing the resources, but also the cost to the recipient that the project will impose. The donor thus bears the full cost of its decisions.
• Donors would have an incentive to coordinate their programmes and send joint missions, since they could then share the costs of mission permits.
• Donors would also have a financial incentive to decentralize their operations to resident staff, rather than sending missions from HQ.

The key to making this work would be for developing countries to be rigorous in limiting donors’ access to ministers and officials to teams holding a mission permit. There would be strong pressures – including financial – on them to accept an additional meeting without a mission permit. This could be avoided to some extent through the visa regime (visiting staff from donor agencies would have to quote their mission permit number), but to some extent the donors would need to police the system themselves.

In general, it seems to me that many of the challenges in the development industry relate are the consequence of negative externalities of donor decisions. As the number of donors increases, the prospects for solving these problems through coordination and committees seem more and more remote – and we should look instead to decentralized, market-based mechanisms to align incentives to deliver better results.

Andrew (“Lord”) Turnbull giving evidence to the Public Administration Select Committee (pdf here) (December 15, 2005):

I am going to start like the Vicar of St Anthony’s: my text is the Civil Service Code verses 9 and 13: “Civil servants should conduct themselves in such a way as to deserve and retain the confidence of ministers” and “Civil servants should continue to observe their duties of confidentiality after they have left Crown employment.” You should keep those two sentences in mind all the way through.

The very same Lord Turnbull gives an interview to the FT (March 20, 2007):

In an interview with the Financial Times, Lord Turnbull, permanent secretary to the Treasury for four years under Mr Brown before becoming cabinet secretary in 2002, accused the prime minister-in-waiting of a “very cynical view of mankind and his colleagues”.

“He cannot allow them any serious discussion about priorities. His view is that it is just not worth it and ‘they will get what I decide’. And that is a very insulting process,” Lord Turnbull said.

Comment: I’m with the 2005 version of Andrew Turnbull. Civil servants have no business revealing their views of Ministers and their behaviour – even after they cease to be civil servants. That is part of the job. Turnbull should not have spoken as he did.

Here is what Turnbull said should be the consequences for those who break those confidences:

the strongest safeguard is a sense of professional pride, and Radcliffe was right that the real sanction is that those who flout the guidelines will suffer reputational damage. Your calling witnesses is helpful in signalling that breaking confidences is not without cost.

I wonder if that loss of reputation means that Turnbull will be shunned for the Quangos, Inquiries and non-Executive Directorships that make up the life of a former Cabinet Secretary?

If we want to reduce carbon emissions, should we cap the total and then allow trading, or should we impose a tax on all carbon emissions? Organizations and Markets looks at the economics. Here is the conclusion:

So the final score is: Permits get a moderate edge on political economy/public choice issues; taxes have a big advantage on institutional/governance issues; and taxes deliver a big can of whipass on traditional economic efficiency concerns. So conditional on accepting the weak case for CO2 emissions control, the Pigou people have a strong case against the cap-and-trade brigade. Maybe they should start making it.

One issue that is not covered here is the distribution between countries. From the point of view of developing countries, cap-and-trade (with equal per-capita emissions targets) presumably has a large advantage over taxing emissions, in the absence of a mechanism to redistribute the revenues from rich countries (which will collect the taxes) to poor countries (who bear most of the costs of adjustment to climate change).

Hat tip: Economist blog. Also Greg Mankiw

US Presidential hopeful John Edwards has set out a plan for fighting global poverty:

As president, John Edwards will fundamentally transform America’s approach to the world. As part of his $5 billion initiative, he will bring high-level attention to help people in three priority areas: primary education, preventive health, and greater economic and political opportunity.

He proposes a Cabinet level post to tackle global poverty (which the UK introduced in 1997) and promises a new Global Development Act to consolidate and simplify the US foreign assistance system.

Comment: It would be good news for development if this becomes an issue in the US Presidential elections.

More at CGD.

Two weeks in Club La Santa in Lanzarote. Feeling fitter, more tanned, and (oddly) a little heavier than when we left.