The series so far includes:

• Duncan Green from Oxfam, who contrasts progress in developing countries over the last year with the gloom of the ‘formerly rich’ countries of the G-8.
• Calestous Juma from Harvard, who identifies regional integration and better links with the diaspora as key drivers of Africa’s growth.
• Shanta Devarajan from the World Bank, who is cautiously optimistic, especially in the light  of increased demand by Africans for their governments to be accountable.
• Linda Raftree from Plan, who also emphasizes progress towards more inclusive and open societies.
• Kevin Watkins from Brookings and UNESCO, calling for “a properly financed global fund for education like those that have delivered such striking results in the health sector“.
• Jonathan Glennie from ODI and the Guardian, who is pessimistic about the prospects for international cooperation in the face of rising protectionism and nationalism as a result of poor economic prospects in the US and Europe.
• and my contribution, reproduced below, which gives a positive account of progress in many countries in Africa over the past year, and emphasizes the importance for developing countries of better global decision-making.

Economic growth has made the developing world less dependent on aid

A new generation of leaders, business friendly policies, technology, the spread of peace, and strong demand for natural resources have helped Africa to withstand the global downturn.

The Mercato, the commercial hub of the Ethiopian capital, Addis Ababa. Ethiopia's economy grew by 7.5% in 2011.

I celebrated New Year’s Day 2011 in Ethiopia, where we lived for three years. Ethiopia is humming with the optimism and energy of a fast-growing country, creating more jobs, sending more children to school, expanding healthcare, and providing electricity, clean water, sanitation and roads.

Ethiopia’s economy grew by 7.5% this year, and it is not the only country in Africa to boast a high growth rate. Africa has been the fastest growing continent of the past decade. The emergence of a new generation of leaders, the end of the continent’s debt crisis, business-friendly policies, new technologies, the spread of peace, and strong demand for natural resources have helped Africa withstand the global downturn.

Steve Radelet, a former senior fellow at the Centre for Global Development, has documented the emergence of 17 African countries in which total income is growing by more than 5% a year – increasing average incomes by 50% in 13 years. That growth is attracting businesses and investors from Africa and abroad, and the continent’s middle class is expanding. By 2015, about 100m African households will have incomes greater than £2,000 a year, roughly as many as India today.

And as they grow, developing countries are becoming less dependent on aid.

At the start of 2011, we did not expect a year in which so many people would be able to claim their rights and freedom. The Arab spring has moved many of us, but should not have surprised us. Better government has spread across Africa and the Middle East, defying outdated assumptions in the west. Thirteen African countries held national elections in 2011, four leading to a change of government; there will be 13 more in 2012. South Sudan gained its independence after a largely peaceful referendum.

When the year began, we did not know the rains in east Africa would fail. But in contrast to the 1980s, in today’s Ethiopia drought no longer means famine. Unlike its neighbour Somalia, there has been no repeat of the TV images of starving people in Ethiopia. That’s because, with the help of foreign donors, it has put in place early warning, food reserves and distribution systems, and a safety net that supports the poorest families in their own communities.

As developing countries have become more integrated into the world economy, and less dependent on aid, so their interests have changed. The most important international events for developing countries this year were the repeated failures of European leaders to put in place a credible plan to save the euro, the G20′s decision to put the world trade talks out of their misery, and modest progress at the Durban talks on climate change. These will all have more impact on developing countries than gatherings of the “development set” at World Bank meetings, the UN general assembly or the Busan forum on aid effectiveness.

But while progress has been good, it is not yet fast enough. Hundreds of thousands of people in the Horn of Africa will have spent Christmas in refugee camps, and about a billion people will go to bed hungry on New Year’s Eve.

In the years ahead, the Centre for Global Development in Europe will be working with policymakers, researchers and academics to find evidence-based, politically savvy ways for rich countries and powerful institutions to help developing countries lift themselves out of poverty. Our focus is on the world’s efforts to promote shared growth, protect our environment, reinvent our financial system, clamp down on international corruption, encourage and share innovation, reduce inequality and entrench peace.

For affluent and developing countries alike, these are the aspirations for 2012.

The southern port city of Busan in South Korea was a fitting host for a meeting on aid effectiveness.  Busan was the port through which humanitarian aid arrived sixty years ago, to help the people of a country ravaged by war.  Korea’s reconstruction and development was financed in part by international aid. Beginning in 1952, American aid alone averaged about $3 billion a year (in today’s prices) and USAID had up to five hundred staff in Korea. Busan is also at one end of the Gyeongbu Expressway, the cornerstone of Korea’s first five year plan and regarded by many Koreans as one of the most important early ingredients the country’s successful industrialization.  When the road linking the country’s main population centres with the port was planned 40 years ago, Korean national income was just $142 a person a year.  The World Bank and other donors refused to finance the construction, regarding it as an excessively grandiose project for a country so poor.  So President Park Chung-hee used a quarter of the nation’s budget, topped up with some reparations from Japan, to pay for it instead. National income quadrupled in the seven years following the construction of the road.

Today Busan is a bustling, prosperous city, home of the fifth largest port in the world; and the Gyeongbu Expressway is scheduled to become part of the Asian Highway, a planned network of routes connecting Korea with Japan, China, Southeast Asia, India, Pakistan, Iran and Turkey.

Korea exemplifies much of what we know about development: the fundamental importance of economic growth and industrialisation; the need for investment in economic infrastructure; the importance of good and effective leaders; the primary role played by the country’s own resources; the additional contribution that aid can make both to improving people’s lives and to investing in development; and the capacity of aid agencies to be wrong, especially in the poverty of their aspirations for developing countries.

Busan delegates wait for Starbucks to open at the conference centre in Busan

So Busan was a suitable place for about 3000 government officials, policy wonks, NGOs and a smattering of private sector representatives to discuss how the aid system could be made more effective.  This was the fourth in a series of meetings, which have toured Rome (2003), Paris (2005) and Accra (2008).

I’ve been involved in all this since 2002, motivated by my involvement in a series of studies in Ethiopia, Rwanda and Senegal. Though we represented donor agencies ourselves, our report was outspoken in its criticisms of donor behaviour. We found that “the aspiration of a government-led process for implementing the PRS [poverty reduction strategy], with a nationally led process for monitoring, review and renewal of objectives, has yet to be realised. Instead, donors have continued to focus on their own timetables, their missions, their conditions, and have demanded information to suit their requirements.”  Our reports on the experience of developing countries were part of the evidence which led to the Rome Declaration on Harmonisation the following year.  Yet despite the best efforts of many good people, the problems we identified ten years ago are, if anything, even worse today.

Since 2003 these summits have grown in size and attracted increasingly senior representation.  Among the roughly three thousand people in Busan were Ban Ki-moon, Hillary Clinton, Tony Blair, a brace of Presidents, a Prime Minister, and hundreds of ministers and senior officials. If this group did not have the authority to make progress on improving aid, it was difficult to know who would.  Negotiations on the communique began back in July and were concluded with the publication on the last day of the meeting of the “Busan Partnership for Effective Development“.

Now that the dust has settled, and many words have been written, it seems to me that there were four significant outcomes from Busan.

The Bexco Conference Centre in Busan

First, the beginning of a new global partnership. This is the result of Busan which the OECD and traditional donors have been most keen to emphasize.  It was not clear right up to the last day whether China, and perhaps other new donors, would be willing to agree to the declaration; and much of the last day was spent refining and agreeing to this key disclaimer which had to be included to persuade China to sign: “The principles, commitments and actions agreed in the outcome document in Busan shall be the reference for South-South partners on a voluntary basis.”  With this disclaimer the new donors are not bound to any particular commitments to improve their aid, but it must be a step forward everyone accepts the need of these new donors to be part of the conversation. Note that there was no need to weaken the specific commitments of traditional donors as a price of China’s agreement, since China was never likely to sign up to these commitments anyway. For example, the October draft would have committed all the donors who had signed the Accra Agenda for Action to “untie all aid by 2015″ – this was taken out of the Busan agreement in the final days at the request not of China, who would not have been bound by it, but of the United States.

Second, the new deal for fragile states. A group of 19 fragile and conflict-affected countries, known as the g7+, has been working with donors on how to improve peacebuilding and statebuilding efforts in these situations, beyond the aid effectiveness agenda.   The main idea has been to focus on five themes: legitimate politics, justice, security, economic foundations, and revenues and services. The resulting “New Deal for Engagement in Fragile States” was endorsed at Busan.  For more information see this article by ODI’s Alasdair McKechnie, and this blog entry by Fernanda Faria at ECDPM.

Third, significant progress on transparency.  Since Accra, transparency has shifted from the periphery to the centre of the discourse on aid effectiveness.  Secretary of State Hillary Clinton earned a round of spontaneous applause for her announcement that the United States would be signing the International Aid Transparency Initiative, taking the membership of IATI up to 75 percent of global aid. Donors committed to draw up plans within a year, explaining how by 2015 they will publish electronically full details of all current and planned future aid projects in a common, open standard. Stephanie Majerowicz and I have written elsewhere about the contribution that the Open Government Partnership may have made to this progress. It also owes a great deal to leadership by the UK and Sweden, and the World Bank and EU, as well as civil society organisations Publish What You Fund, Development Gateway and aidinfo.

Fourth, significant changes in the international governance of the aid system.  This may be one of the most important outcomes of Busan, yet it has so far attracted little comment.  The Busan agreement abolishes the Working Party on Aid Effectiveness, which is technically a sub-committee of the OECD DAC but in practice has become a sprawling network of committees and meetings which had come to represent a broader group of stakeholders than the donor club in which it had been incubated. In its place will be a new “Global Partnership for Effective Development Cooperation”, to be supported by the OECD and UNDP. Though it may seem impolite to point this out, this change relegates the DAC back to the role of a caucus of traditional official donors, representing a dwindling proportion of aid, in defiance of its aspirations to lead reforms of the global governance of development cooperation. Even more significantly, Busan turns its back on the requirement of unanimity which has underpinned agreements on the aid system for the last 50 years. The DAC makes decisions by consensus, giving all its members a veto so that it moves only at the speed of the slowest ship in the convoy.  But that is not how Busan envisages progress in future.  The implementation of Busan will take place through a series of ‘building blocks‘ which are described as “voluntary, practical and actionable game-changers in the global dialogue on aid and development effectiveness.”  This model was apparently conceived in in the light of the experience of work on transparency – the issue on which most progress has been made since Accra – which was taken forward by a coalition of the willing in the form of the International Aid Transparency Initiative. Stepping outside the DAC structures enabled a group of donors, foundations and civil society to work together without the constraint of an implicit veto of reluctant partners.  Busan marks a shift in the global governance of development cooperation from consensus in the DAC to the ‘variable geometry’ of building blocks. The declaration highlights  the ”opportunities presented by diverse approaches to development cooperation”.  There are new commitments for all donors on transparency, and the declaration calls for “a selective and relevant set of indicators and targets through which we will monitor progress”. (It is hard to see how these targets will be agreed in the coming months given that no consensus could be reached in the run-up to Busan.)  But beyond exposing their behaviour to public scrutiny, there is little else to which donors have specifically committed.  This evolution of the architecture for the global governance of development cooperation towards progress by more flexible coalitions of the willing has obvious parallels with the direction in which the global governance of climate change is also moving.

In addition to these four outcomes on which progress was made, I noted five other themes being discussed in Busan which were not translated into significant progress, but which may be issues to watch for the future. These were:

• everyone wants a shift from aid effectiveness to development effectiveness - the importance of this change in perspective was emphasized by many people, especially the delegations from Africa.  It is intended to mean focusing more on non-aid policies, and talking more about development outcomes. Everybody said they were in favour of such a shift, but this does not seem to have had much effect on the Busan agreement.
• there is greater recognition of the role civil society.  The Accra meeting in 2008 was notable for the involvement of civil society in the meeting. Busan went further by including a civil society representative in the drafting committee, which led to specific recognition (in para 22) of the role that civil society plays in the development process, especially in enabling people to claim their rights and in service delivery.
• everyone is talking about ‘the results agenda’. I actually think there are at least three results agendas, not wholly consistent with each other.  My CGD colleagues hosted a side event on results, which in my (not unbiased) view was one of the better discussions in Busan.  But overall there was not much progress on results from Busan, other than calling for developing countries to put in place specific results frameworks at country level. I anticipate that one of the most important ‘building blocks’ after Busan will be on how the development system can do a better job of identifying relevant results, and how to avoid the risk that a focus on results leads to misallocation of money, for example away from longer term and institutional changes towards short-term and easy to measure results.
• the notion of mutual accountability is evolving.  As Nancy Birdsall pointed out on the CGD blog, there seems to be less focus on ‘mutual accountability’ between donors and developing countries, and more attention to accountability of donors to their taxpayers and of aid-recipient governments to their own citizens in their use of aid.
• there is more talk about the private sector.  There were lots of meetings about the private sector and its role in development, but I got the impression that it was mainly discussions between governments, development finance institutions, and some government affairs and corporate social responsibility representatives of firms from industrialised countries. I saw no sign of any businesses from developing countries being part of the discussion. I wonder what anyone really involved in business would have made of Busan.

I’m glad to see more people taking development effectiveness seriously, and impressed that the UN General Secretary and US Secretary of State felt it worth their while to attend.   I also agree that it is important to build broader coalitions, and to think strategically about development and not just aid.  But I also regret that, as a consequence, these meetings are gradually losing the focus on more technical issues about how aid is delivered.  In 2003, the signatories to the Rome Declaration committed themselves to amend their “individual institutions’ and countries’ policies, procedures and practices to facilitate harmonisation”.  Yet in 2011 in Busan, the President of Rwanda, Paul Kagame, gave a masterclass in aid effectiveness, in which he observed

Developing countries spend more time and energy agreeing on procedures and accounting to donors and an ever-increasing number of related non-state actors than in actual development work, often responding to endless questioning that no answers can fully satisfy.

As Busan has shifted the discussion away from the nuts and bolts of how aid is delivered, and pushed much of the specific discussion of aid effectiveness to country level, it is not clear to me that there is any place left to address the concerns about donor agency policies which President Kagame so eloquently expressed.

In years to come, I expect that we will look back on the Busan agreement as a reflection of changing realities, including the growing range of different kinds of donors and shifting geopolitical power.  I think it less likely that we will look back on Busan as having done much to shape those realities.

Further reading:

Aid Alert: China Officially Joins the Donor Club By Nancy Birdsall (President of CGD), December 5, 2011

Busan HLF4: The will and the way By Brian Atwood (Chair of DAC), December 8, 2011

Busan has been an expression of shifting geopolitical realities  By Jonathan Glennie (ODI / Guardian), December 2, 2011

A View from Busan By Andris Piebalgs (EU Development Commissioner), December 5, 2011

Reflections on Busan By Judith Randel (Development Initiatives), December 9, 2011

Beyond Aid to Open Development By Alan Hudson (ONE), December 6, 2011

Moving towards open development By Sanjay Pradhan (World Bank), December 1, 2011

Busan: Yes we could By Patrick Love (OECD), November 30, 2011

An unnoticed but crucial development summit By Manuel Manrique (FRIDE), December 4, 2011

Busan: A Bang or a Whimper? By Alan Hudson (ONE), December 2, 2011

Busan: Why Aid Effectiveness Matters By Jessica Espey (Save the Children), December 1, 2011

Busan Forum: Aid promises come tumbling down By Sanda Van Damm and Jennifer Martin (Oxfam), November 29, 2011

Verdict still out on whether Busan is a good deal for poor countries By Oxfam, December 1, 2011

Two-speed aid effectiveness By Stefan Leiderer & Stephan Klingebiel, December 7, 2011

‘Value for money’ or ‘Results Obsession Disorder’? By Marcus Leroy (ex Belgian Development Cooperation), December 7, 2011

A killing embrace of diversity By Reinier van Hoffen, December 6, 2011

Towards more effective aid By Axel von Trotsenburg (World Bank), December 1, 2011

Written Ministerial Statement: Outcome of the Busan High Level Forum on Aid Effectiveness By Andrew Mitchell (UK Secretary of State), December 7, 2011

Three-way-learning. The South-South Agenda in Busan, By Han Fretters (World Bank), December 1, 2011

Aid architecture debate surfaces new ideas, appetite for dialogue By Axel van Trotsenburg (World Bank), December 2, 2011

h/t @ithorpe

On which subject, I’m amazed by how many international development organisations do not make effective use of video conferencing, either by using commercial systems (eg Polycom, Tandridge) or Skype or (my favourite for low bandwith settings) GoToMeeting.

“The defining division these days is increasingly: open or closed? Are we open to the changing world? Or do we see its menace, but not its possibilities?”

—Tony Blair, A Global Alliance for Global Values, September 2006

It is easy to be cynical about international summits and their carefully drafted communiqués. But they sometimes matter more than people expect. (If they didn’t, why would government officials put so much time and effort into negotiating the text?) Even if the text is often a bland compromise, these meetings can help to move an issue forward, by locking in a new consensus which forms the platform for further progress.

We saw how this works at this week’s High Level Forum on development effectiveness in Busan, South Korea. In a speech notable for a thinly veiled warning about aid from China, Secretary Clinton made the welcome announcement that the US would join the International Aid Transparency Initiative, which entails the publication of the details of all US aid projects.  This decision has given a major impetus to the international movement for aid transparency, which has been one of the important outcomes of the Busan meeting. According to US administration insiders, this decision was in part a consequence of an earlier international  initiative, which has not had as much attention as it deserves: the Open Government Partnership (OGP).

The OGP is an effort to create a club of nations committed to good governance and transparency. It was launched a few months ago in New York, at a side-event of the UN meetings, by 26 heads of state, the culmination of months of work by the White House and eight partner governments.

David Eaves (an open government enthusiast from Canada) sees the Open Government Partnership as more than just another meeting.  The OGP, he says:

…is much more than a simple pact designed to make heads of state look good. I believe it has real geopolitical aims and may be the first overt, ideological salvo in the what I believe will be the geopolitical axis of Open versus Closed. This is about finding ways to compete for the hearts and minds of the world in a way that China, Russia, Iran and others simpley cannot.

The Economist blog is less convinced: in their view “this is really nothing new or major” especially because the partnership includes “such beacons of openness as Russia and Pakistan.”

We’ve warmed to the Open Government Partnership after some initial skepticism.  The architects never had the grandiose ambitions that David Eaves suggests: rather they wanted to do something which might encourage small, tangible improvements in the way governments promote transparency and good governance. The idea is to provide a network of support to reformers across the world pushing for open government, to enable them to share ideas and lessons, and to strengthen their hand by demonstrating to sceptics that they are part of a broader international movement.  It brings government’s domestic achievements to the international spotlight to encourage reforms and reformers.  By that modest yardstick, the initiative is a step in the right direction.

Why were we skeptical at first?  Partly for the reasons set out by the Economist: the standards for joining the OGP (and the implicit endorsement that it confers) are not very exacting. What kind of transparency club has Russia and Azerbaijan as members? More importantly, we felt that an international initiative would have most value if it focused on transparency of cross border flows such as payments by companies for minerals, cross-border transactions between multinational companies and their subsidiaries, aid transparency, and cooperation between tax authorities. It is in tackling transnational problems that an international coalition makes most sense. But there was little political appetite for starting with these difficult international problems, and the OGP has focused mainly on encouraging its members to implement policies which promote transparency domestically.

But although the OGP has not focused on improving the transparency of international flows, there are already signs of how it can work to put pressure on its members to be more open.  It has apparently contributed to the announcement this week that the US would join the International Aid Transparency Initiative, bringing the US into line with other OGP members. Furthermore  there is now a debate bubbling up in the UK about the Extractive Industries Transparency Initiative which requires governments publicly to disclose their revenues from oil, gas, and mining assets, and for companies to disclose the payments they make. President Obama announced at the launch of the OGP that the US would itself become a member of the EITI.  As a result, the UK is now under pressure to follow suit. Although the UK was a supporter of EITI from its inception, it has never joined itself (partly because of opposition from the Business Department): a position which will be more difficult to sustain if and when the US fulfills President Obama’s commitment to join. That is exactly the kind of international peer pressure which OGP is designed to generate.

So the OGP is, to misquote Churchill, a modest initiative with much to be modest about. It was not conceived as the opening salvo of a new battle, but as a small step to encourage and support those countries round the world who want to move towards greater openness and transparency. There are some welcome signs that it is already making a difference. It may eventually lose momentum, especially as the politicians who put it together move on, and it may become too diluted by the undemanding criteria for membership. We hope not.

More than two thousand delegates have gathered today in Busan, South Korea, for the fourth installment of a succession of meetings aimed at making aid more effective.

There has been significant progress since the meeting in Accra in 2008 towards improving transparency of aid. This is important because it’s a pre-requisite for achieving all the aid effectiveness principles. Jamie Drummond from the ONE campaign explains this very well in the Huffington Post.

The challenge is to provide information to people at country level. Our existing aid information systems are mainly designed to enable donors to share information with each other, not to meet the needs of people in developing countries.

But the information needs at country level are hugely diverse, both between and within developing countries. Within governments, the information needs of the finance ministry are different from the needs of line ministries. The needs of parliamentarians, civil society, media and citizens are all different again. It is impractical for donors to try to meet the needs of every niche interest with their own subset of the data in a particular format.

뜻이 있는 곳에 길이 있다  (where there’s a will there’s a way)

Here’s the technical bit: the way to serve all these different needs for information without massive duplication and bureaucracy is to separate the data from the interface. An open, standardised, detailed, shared data layer can support a whole range of different applications, tailored to specific users.

That is why it is so exciting that the open data revolution is coming to aid. In 2008, in a side-meeting in Accra, a coalition of willing donors, developing countries, foundations and NGOs made a declaration which launched the International Aid Transparency Initiative. A lot of that data is now being published – countries accounting for nearly half of global aid are now publishing through IATI, and that proportion will grow in the coming months.

If you are in Busan this week, and you want to know how IATI works, the IATI secretariat will be doing a briefing at 5pm on Wednesday, in room KW202 (I’m making a guest appearance to show off some beta software, so do come along and laugh at me when it doesn’t work).

천릿길은 한 걸음부터 (A 1000-li journey starts with one step)

Transparency by itself does not lead to more accountability, less waste, or better coordination. That happens when people are able to use the information. The extent to which they are able to do so depends on their context, including the political and administrative climate. Open data won’t automatically make organisations responsive, but will greatly reduce the difficulty and cost for citizens of taking the data and turning it into something meaningful and useful.

With an open aid data platform now in place, huge opportunities are being opened. We can use the standard to introduce traceability of aid as it passes from organisation to organisation. We can improve the quality and detail of the data that is collected and publish it through these systems.

Reporting of aid data should be not just by donors but by NGOs, private sector implementing agencies and foundations. The mechanisms for sharing information can be extended beyond aid to other kinds of resources for poverty reduction.  We can add detailed geo-coding, to enable aid projects and programmes to be mapped, and better coordinated.  We can begin to compare across aid programmes and across countries. We can mix aid information with other data from other sources.

The twenty four donors who have signed IATI should be congratulated for their efforts to make data available. The payoff from that effort will come when we all start to use the data to understand aid better: to see what is working and what is not, and to hold the aid system to account, so leading to improvements in the effectiveness of aid. IATI removes the most significant barriers to entry for a wide range of diverse applications.

The next step is to nurture and encourage an ecosystem of civil society groups, parliamentarians, researchers, think tanks, academics, governments, private sector organisation, media and hackers, all accessing and using the information in different ways, and using this as a platform to push for improvements in how resources for poverty reduction are used. The new Open Aid Partnership is an example of an initiative of this kind: the door is now open for many more.

We can now look forward to the day when we take for granted the ubiquitous availability of aid data. We will soon forget that it was ever a struggle to find out about aid projects in a developing country, or to follow the money through NGOs and implementing partners. Having laid these important foundations, we will be able to move on to much more important and exciting innovations which support people in developing countries to use and repurpose this information and use it to change their world.

Much of the development policy world converges on Busan this week for the High Level Forum on Aid Effectiveness. This is the fourth in the series after Rome (2003), Paris (2005) and Accra (2008).  The Guardian has a good ‘explainer’ about the issues being discussed.

Behind the scenes here in Busan, the trade-off is between getting everybody on board, including new providers of south-south cooperation such as China, India and Brazil, and pushing the boundaries towards more effective aid from existing donors.

Liberian children hold Chinese flags before the arrival of China's President Hu Jintao

Busan offers the possibility of a globally inclusive agreement, especially bringing in the important providers of south-south cooperation such as China and India, and non-traditional donors such as foundations and the private sector.  But a broad consensus may only be possible if the text is sufficiently watered down. New donors are unlikely to sign up to an agreement which seeks faster improvements in development assistance by setting more explicit and demanding targets than were agreed in Paris and Accra. Most would not be willing to sign up even to long-established effectiveness principles such as untying aid, more predictability, and greater transparency and accountability.  Nor are they likely to agree to be bound by any kind of monitoring or enforcement regime.

Many of the organisations involved in Busan have a strong institutional interest in emphasizing the benefits of a ‘big tent’ agreement:

• Individual DAC donors will be glad to talk up the importance of drawing new players into the process. They can trumpet this as a big step forward, especially to domestic audiences which feel threatened by China’s growing global role. They can pretend to be disappointed that it has required them to accept a rather bland communique which steps back from their existing commitments, while being privately relieved to have been let them off the hook for the improvements in aid to which they have agreed in the past and which they have shown themselves unwilling to make.
• A dialogue with new donors could give a new raison d’être to the DAC, an OECD body which is otherwise staring into the abyss of obsolescence. The DAC is a club of traditional government donors which constitute a dwindling proportion of global aid; nobody any more believes that an exclusive group of donors should set the rules of the aid system; and anyway DAC members themselves have failed to implement the principles they have agreed.  It is not lost on the 150 staff of the DAC that hosting a dialogue between traditional and emerging donors could give the DAC a new lease of life.
• The Korean hosts will be looking ahead to how the Busan conference will be remembered. Building the bridge to new Asian donors would be a natural legacy. Korea has itself only recently joined the DAC and they would be very glad to shift the discussion away from compliance with a (largely European inspired) aid effectiveness agenda towards the value of a broader dialogue with emerging donors and the private sector.
• China would be happy to have a declaration which validates their approach to development cooperation, but they do not regard this as important. They are apparently sending a small, low-key, delegation of about six people to Busan, and it is rumoured that they will either not sign the outcome document at all, or that they will sign as a developing country but not as a donor. China believes that different rules should apply to ‘south south cooperation’, so in principle they do not regard any of this discussion as applicable to the aid they give. In any case, China gives very little actual aid (as defined by the DAC) – probably less in total than Switzerland. The vast majority of China’s involvement in developing countries takes the form of quasi-commercial trade credits which are not included within the scope of these aid effectiveness discussions.

Given these strong institutional interests which favour getting China on board, it is no surprise that the latest (5th) draft of the Busan Outcome Document is a largely anodyne document with few additional commitments by donors. The UK Aid Network has a concise update about this here. Unless this changes in the next few days, Busan will be remembered as the conference at which traditional donors retreated from the explicit, time-bound commitments and monitoring arrangements which they agreed in Paris in 2005.

There is one group of stakeholders with something to lose from this: the people of developing countries who are the intended beneficiaries of aid, whose voice is not strongly heard in the discussions. They are the people who lose out when aid is wasted because it is unpredictable, untransparent and unaccountable.  It is their services, not the aid bureaucracies, which suffer when there is duplication and burgeoning bureaucracy.  It is their businesses which are damaged by tied aid.  It is their governments which become answerable not to their citizens but to an unaccountable group of donors.  A decision to accept a weaker, more universal agreement in Busan will satisfy the donors, but the poorest, most vulnerable people in the world will pay the price.

As Gideon Rabinowitz of the UK Aid Network pointed out last week, the Accra communique was similarly disappointing at a similar stage before the 2008 conference.  That time round, a group of European development ministers arrived in Accra and insisted on significant improvements, causing outrage among other participants, not least the bureaucrats who had sat through endless drafting meetings over the preceding months only to find their work had been nugatory.  But this year, those donors seem to be much less inclined to use any of their economic or political capital pushing for improvements in aid.    So it will suit them to emphasize the importance of a new agreement which includes China, and hide behind this as an excuse for their own inability to summon the political will to make aid more effective.

There is, however, another approach which could both and secure broad international agreement and still lead to substantive improvements in aid effectiveness. We should learn from what has happened since the Accra High Level Forum in 2008, in particular on transparency which is the issue on which there has been most progress. Donors accounting for half of global aid are now publishing their aid data through the new International Aid Transparency Initiative, IATI. But this has not been achieved by the official DAC processes which are limited to moving at the speed of the slowest ship in the convoy. Instead, a coalition of willing donors has worked alongside the official process to agree and implement an international aid transparency standard.

There is a lesson here as we consider how to move forward from Busan. A possible approach is to accept an outcome document setting out principles which represent the ‘highest common factor’ among all the participants, which is buttressed by (and which could endorse and launch) various coalitions which are willing to move forward more quickly on particular issues (e.g. predictability, using country systems, and so on).  These coalitions can then be pathfinders, leading by example and exerting peer pressure on other donors.  Taxpayers in donor countries can put pressure on their governments to join these coalitions, so that their aid also benefits from the improvements which the coalitions are bringing about (in the way, for example, that the Canadian NGO Engineers Without Borders has put pressure on the Canadian government to join IATI.)  There is more hope of achieving real progress through a series of path-finding coalitions than by investing all our energy in a universal agreement which is acceptable to everyone and satisfies nobody.

Two key pieces of background evidence have just been published which provide the backdrop to the discussions in Busan.  First, the Broookings Institution and my colleagues at the Center for Global Development have published an updated Quality of Official Development Assistance index (QuODA), which scores donors on the effectiveness of their aid.  Second, Publish What You Fund has published an Aid Transparency Index ranking donors according to how much information they make available about the aid they give.

CGD and Brookings Quality of Aid Index  (QuODA)

QuODA is an assessment of the quality of aid provided by 23 donor countries and more than 100 aid agencies. It uses 31 indicators grouped in four dimensions that reflect the international consensus of what constitutes high-quality aid:

• Maximizing Efficiency
• Fostering Institutions
• Reducing Burden
• Transparency and Learning

QuODA itself does not provide an overall ranking of donors.  The reason is that your view about the overall effectiveness of a donor will depend on how much weight you place on each indicator.  But for what it is worth, here is how the ranking of donors looks if you give equal weight to each of the four QuODA dimensions:

Donors may quibble about which of the indicators are important, though all the indicators reflect solid academic research and experience about what makes aid effective, embedded in the international consensus about aid effectiveness to which they have signed up.  For anyone wanting to focus on particular indicator and dimensions of effectiveness, the data are published online in an interactive web tool.

My two observations about this are:

• almost every donor has something to be proud of (nearly every donor is in the top half in at least one dimension) but all donors have considerable room for improvement;
• the multilateral agencies do better, on the whole, than the bilateral agencies; this may be because they are less susceptible to pressures from national donor politics;  the World Bank, in particular, scores extremely well across the board

The Publish What You Fund Pilot Aid Transparency Index

The PWYF Aid Transparency Index, published today, dives deeper into whether donors publish adequate information about the aid they give.  They analyze 58 organisations on 37 dimensions of transparency, mainly relating to whether information is available about particular projects and activities.

The World Bank tops the transparency index too. Indeed, there appears to be a strong correlation between aid transparency and aid effectiveness more generally.  The chart below plots the PWYF transparency scores against the average of the three dimensions of QuODA which do not relate to transparency.

This correlation between aid effectiveness and transparency could come about for three reasons:

a. common causes: well-governed and well-managed aid agencies are likely to be both more effective and more transparent;

b. effectiveness causes transparency: aid agencies that are ineffective and know it are likely to want to be secretive; agencies that are effective are likely to want to tell the world more about what they do;

c. transparency causes effectiveness: agencies that are open and transparent are less likely to make decisions to use aid ineffectively because they will be held to account by politicians and the public.

Conclusions

The good news from both the QuODA index of aid quality and the PWYF Aid Transparency index is that it is possible for donors to live up to the goals they have set themselves to make aid more effective and more transparent.  Most donors do well on some indicators, and yet are a long way behind the best on others.  The bad news is that there is a long way to go before donors overall live up to the pledges they have given.

Time will tell whether yet another conference, and yet another communique, will make any more difference to donor behaviour than have the last three. However, there does now seem to be welcome momentum towards putting more information about aid into the public domain, and we may hope that this will, over time, provide both the information and political pressure needed to make aid more effective. If Busan succeeds in giving a big push to aid transparency, that may be the biggest contribution it can make towards the ambitious goal of ‘transforming’ aid.

Information, not coordination, is the key to aid effectiveness.  Some donors such as USAID are becoming interested in a more decentralized ‘Google Maps’ approach to aid coordination, to facilitate well-informed decisions by people on the ground. For this to work, donors need to do two things: publish more detailed project level information, and do so in an open, reusable, internationally consistent data format. Transparency aimed at a domestic audience is not sufficient.

We now know that the development system has met just one of the 13 targets it set in 2005 for making aid more effective. That is not surprising: the problems diagnosed in the Paris Declaration are real and important, but the solutions that have been pursued in its name have not been practical. There are better ways to achieve the aid effectiveness which the Paris Declaration envisages.

Here is an example of the problem, from Indonesia after the 2004 tsunami:

“Last February in Riga [close to Calang in Indonesia], we had a case of measles. The epidemiologists from Banda Aceh gathered, fearing that the measles would spread among displaced people, but the girl was cured in two days. Eventually we discovered that this child had been vaccinated three times by different organizations, each without a vaccination card or any type of control. The symptoms were the result of these measles vaccines”.

Informal translation of an article in El Pais (April 13, 2005)

This is a graphic example of a widespread problem in development and humanitarian aid: a coordination failure leading to a substantial waste of money.

Following Paris, a conventional wisdom has grown up on how this kind of problem should be tackled. The regional health department should call a big meeting of all the donors and NGOs who might be interesting in running an immunization programme. They should share information with each other about their plans: which vaccines they intended to administer, and where. Under the leadership of the ministry, the donors should agree a division of labour to eliminate overlaps and ensure that aid is used efficiently.

Similar committees would have met to plan and coordinate every other kind of intervention to avoid overlap and make the best use of limited resources.

You don’t have to have a degree in Political Science to be able to see why this committee approach does not work. A country director for a large government aid agency recently told me that he spent more than half his time in donor coordination meetings. Most of each meeting is taken up by donors listing what they are doing. (Not surprisingly, he has now quit.)

So what is the alternative?

Once an aid agency has been licensed by the health ministry to provide vaccinations, it could simply publish online, in an accessible format, details of its plans and activities. Another organization planning its own programme could then easily check how they can best fit with what other agencies are doing. With open information sharing, no child would be vaccinated against the same disease twice; and under-reached populations could be easily identified and served.

This is an example of an important general point about improving aid effectiveness. Aid staff on the ground should not be stuck in endless coordination meetings: they should have the information they need to make good decisions about how to have the biggest impact, within a regulatory framework established by government, without being constrained by inappropriate rules and incentives imposed on them from far away.

A Google Maps approach to development?

There is growing interest in a ‘Google Maps’ approach to development coordination. We have seen welcome moves towards mapping of aid projects, for example by the World Bank, USAID, and Canadian CIDA. But as the example of vaccination in Banda Aceh illustrates, the key to making this information useful is that sufficiently detailed data from many different organisations is available in one place.

Some of the momentum towards greater aid transparency is driven by the need for increased accountability to taxpayers in donor countries. This is a laudable goal, but if data publication is targeted on this purpose alone it misses even bigger potential benefits from transparency. The US Government is making gradual progress on its Foreign Assistance Dashboard and a geographical coding system: but on current plans the data will not contain enough substantive detail. It will record information which is good enough to get a broad sense of where aid is being spent (‘top level administrative region’) but will not record specific locations (‘street corner’). This approach may be enough to meet the needs of a US accountability agenda, but it will miss the opportunity to use robust project level data and geo-coding to track and coordinate aid, to close down the space for corruption and waste, and to link feedback from project beneficiaries to specific aid funders.

It is also important that aid information is published in a reusable open data format, which has been agreed by a large group of donors in the IATI standard. Several donors – including the World Bank, the European Union, DFID, Australia and the Netherlands – are now publishing their data this way. Other donors have plans to do so. While it is welcome that Canada is publishing more detail about its aid projects, as the website makes clear the target audience for this information is “all Canadians”. The information published by CIDA is of almost no use to people in developing countries because it is not published in a form which is compatible with data from other all the other donors. Open data – in the sense of being genuinely accessible and comparable – enables civil society, parliamentarians and citizens of developing countries to be part of the coordination and accountability from which they are presently excluded.

In contrast to Canada, the United States has said it will ‘cross-walk’ its aid data to the IATI standard, which is extremely welcome. But so far they have not done so. While the implementation of a Foreign Assistance Dashboard is an important step towards domestic US accountability, all this data will only be of use internationally to make aid more effective and accountable when it is also published according to the international data standard.

Of course, USAID and State Department have limited resources and should be spending their money as much as possible on aid rather than administration. But as the World Bank has found out with its Mapping for Results project, it is not tremendously complicated or expensive to geo-code aid projects – and it will be even easier if that is done at the outset by front line staff who have detailed knowledge of the projects, rather than retrofitted afterwards in Washington. Nor has it proved difficult or expensive to organize data into the IATI format: I am told it took UNOPS just four weeks to implement IATI, from start to finish. There are many other donors, and organisations such as the Development Gateway, AidData and aidinfo, who have experience in geo-coding projects and publishing information in IATI format, who would be glad to help to design procedures, set up systems, and even to share their computer code. Furthermore, the administrative savings from reducing duplication by publishing open data are estimated rapidly to outpace these modest implementation costs. This is not primarily a question of money, but of leadership, recognition of the value of transparency which serves international as well as domestic audiences, and a willingness to reach out to work with others.

We can – and must – make aid more effective. This means making sure that decisions on the ground are likely to yield the biggest possible impact, and for that we need not more coordination meetings but better information, greater decentralization, simplified systems, fewer perverse incentives and more accountability.

If you have comments please put them on the CGD website.

Does Britain’s remarkable political consensus supporting foreign aid obscure a more ambiguous overall footprint in the developing world?Though by no means unanimous, Britain’s cross-party agreement to protect the aid programme from budget cuts is admirable. It reflects an understanding that it is ultimately in the national interest to support development, as well as being the right thing to do.

But there is more to helping poor nations to develop than giving aid. Rich and poor nations are linked in many ways: through trade and investment flows, migration, the environment, military affairs and technology. Governments influence all these channels, for good and ill. They subsidise their own agriculture, undercutting poor farmers overseas. They send peacekeepers to nations that are healing after civil war. They tax petrol, slowing global warming. They promote technological change, but limit its spread through patents.

Poor countries do not want to depend on aid: they want the opportunity to trade and grow and play their full part in the world economy. Their ability to do so depends in part on how the rich and powerful behave. That’s why the Centre for Global Development produces the annual Commitment to Development Index (CDI) to assess rich nations on their overall impact on the developing world.

Interactive: the Commitment to Development Index

In the latest index, published on Tuesday, Britain ranks 12th out of 22 countries. As you would expect, Britain scores well on foreign aid (ranking 8th). British aid is respectable for both its quantity, now at 0.51% of national income, and for its quality — the Department for International Development (DfID) tends to avoid parcelling aid out in penny packets, which impose an administrative burden on understaffed recipient governments.

Britain’s place in the CDI, however, is hurt by weaknesses elsewhere. Along with France and the US, it is a major exporter of weapons to undemocratic nations such as Saudi Arabia, which this year deployed its military to put down pro-democracy protesters in Bahrain. That’s why the UK ranks 19th out of 22 on security.

Once again the Nordic countries and the Netherlands come top of the league. Generosity with aid plays a part, but so do progressive policies on the environment (especially, limiting greenhouse gas emissions) and migration (welcoming legal immigrants from developing countries). Japan and South Korea are the least development-friendly, with high barriers to goods and workers from poorer nations and low contributions to foreign aid and peacekeeping operations.

Given the Blair government’s high-profile commitment to Africa, it is interesting to ask whether Britain does well by that continent. In fact it does, which one can see by selecting “sub-Saharan Africa” in the interactive. Doing so zeros in on aid to Africa, barriers to African imports, secondments of troops to peacekeeping in Africa, and so on. The UK comes fourth, behind only Ireland, Portugal and Sweden.

As you can sense, we have packed a lot into the CDI. The interactive lets you explore the details. The index is based on publically available data, and on the Centre for Global Development site you can find all our calculations so you can see how the scores are produced. You can also browse through performance reports for each country, and background papers. For the technically savvy, there are online spreadsheets and databases.

The Centre for Global Development has worked hard to improve the CDI. But it is not an infallible measure of development impact and intent. You can argue about almost every indicator. Are big aid projects always better? What if carbon emissions fall for reasons that have nothing to do with government policy? And should it include economic policies, such as bank regulation and interest rate settings, which also have huge effects overseas?

We welcome such discussion. For us, the real goal is not an infallible index, but more awareness of, and readiness to improve, the full range of policies that affect the lives of the global poor. Aid alone is not the way to measure our footprint in the developing world. The CDI shows that every country can improve on many fronts.

David Roodman is a senior fellow at the Centre for Global Development and the architect of the Commitment to Development Index. Owen Barder is a senior fellow and the Europe director of the Centre for Global Development

It is a shame that an increase in the number of special adviser posts is treated as an indicator of either profligacy or politicization of the civil service.  Special advisers have played an important role which has helped the civil service and protected it from being drawn into party politics.  In my civil service experience over 25 years, I worked with some excellent special advisers. Some of them, such as David Cameron, John Bercow, Ed Miliband and James Purnell, have gone on to other jobs in politics. Others have returned to jobs in business, think-tanks or public relations.  I worked with some duds too: that’s when you really came to appreciate the advantages of having good one.

Norman Lamont, then Chancellor, with his Special Adviser

A good special adviser plays an important role in government by helping the civil service to think about the political implications of policy options – which is an essential perspective if policy is to be well-designed and implemented.  They work with civil servants to identify the political questions that ministers are likely to ask, and to provide satisfactory answers, helping to smooth the policy-making process. They deal with party political issues – such as writing speeches for party events and dealing with party processes.  Without special advisers, civil servants in Ministers’ offices would inevitably end up being drawn into these party issues.  Special advisers also play an important role in helping to break down the silos across Whitehall – they often do at least as good a job as the civil service at identifying issues requiring cross-departmental discussion, and helping to broker agreements across government.  All this is provided within a reasonably well-regulated structure which helps to avoid accusations of improper influence by outsiders.

The total cost to government of all this is about £7 million a year – in other words, negligible, relative to the institutional benefits of having a transparent arrangement which ensures that Ministers have access to alternative sources of advice from a political perspective.  The Institute for Government recently recommended the appointment of additional special advisers to strengthen the functioning of the coalition government.

Michael White asks in today’s Guardian why Liam Fox didn’t make Adam Werrity a Special Adviser.  I don’t know the answer, but a possible explanation is that each minister has a quota, in an attempt to keep the numbers down.  Gordon Brown, when he was Chancellor, got round this by appointing a “Council of Economic Advisers” instead. It is sad to see a cheap political tail (a fetish about the number of Special Advisers) wag an important institutional dog (having a structured mechanism for Ministers to draw on political advice if they wish).

The political establishment has become absurdly fastidious about the idea of Ministers getting advice from a variety of different sources.  There is no principle – nor should there be – which prevents Ministers from listening to the opinions of a wide range of people from outside the ranks of the civil service and special advisers. We should welcome a diversity of opinion, especially from people who are well-informed in an issue, which almost always means they have some sort of interest in it. These interests may be financial, institutional or simply a matter of doing something in which the person believes.  There is no requirement that a civil servant must always be present when Ministers meet other people: the civil service is not there to police a Minister’s interaction with the outside world (and nor does the civil service wish to do so, though sometimes they may wish they had). It is up to Ministers to choose which advice they wish to heed, and they are accountable to Parliament for those decisions. The civil service already has privileged access to decision-making: it should not (and in my experience does not) aspire to have a monopoly.

So can we please embrace the role of Special Advisers in government; not impose too tight a cap on their numbers; and ensure that they are properly paid and supported? They play an important role in the strange ecosystem of government.

Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

Steve Jobs 1955-2011
Commencement address at Stanford University on June 12, 2005

This year the UK Conservative party gave up their party political broadcast which usually coincides with the part conference, and used it instead to appeal the British public to give money for the East African famine.

The government is committed to protecting the aid budget. Frances Cairncross asks whether a more relaxed policy on economic migration might help the developing world more.

I was interviewed for the programme, and there were three points I wanted to make, which I didn’t entirely get across. So here they are:

a. It is too narrow to think of the benefits of migration mainly in terms of remittances.  The benefits are much broader than that.  Michael Clemens used an excellent analogy in a CGD podcast: it is as if we were determined to talk about the impact of the increase in women’s participation in the workforce by the money that they contribute to the housekeeping.

b.  We should think about the impact of migration more in terms of the impact on people and less in terms of the impact on countries. In particular, there is a substantial benefit to the migrants themselves which should be at the front of our minds. (I sort of managed to make this point in the clip they used of me in the programme); and

c. there is not a trade-off between providing aid and supporting people from developing countries who want to live and work abroad: we can do both.

The programme will be broadcast again on Radio 4 on Sunday night at 21h30.  You can also download the programme from the BBC website. (Mirrored here.)  Here is the transcript.

Has the aid industry introduced the reforms it agreed in 2005 to make aid more effective? No, according to the survey published last week by the OECD DAC.  In this blog post we reflect on why this matters, and what it means for the forthcoming summit in Busan.

The development sector is in a mess. Developing countries have to deal with a large and growing number of partners, each with separate agendas, priorities, and requirements. Meetings, reports, milestones and systems multiply. Skilled staff are hired away from governments and from business to serve in local agency offices or NGOs. Funding is fragmented and unpredictable, which means that developing countries are often unable to bring together the scale of long-term, predictable finance needed to undertake significant institutional reform and service delivery. As just one example – in Vietnam, it took 18 months and the involvement of 150 government workers to purchase just five vehicles for a donor-funded project, because of differences in procurement policies among aid agencies.

None of this is news, nor is it disputed. The donor club of industrialised countries, the DAC, says:

“poor co-ordination and unpredictable aid waste funds that should be eradicating poverty in the world’s poorest countries.”

Six years ago developed and developing countries committed themselves to fixing these problems. The Paris Declaration on aid effectiveness set out five principles to make aid more effective, and a set of thirteen measurable targets which they aimed to reach by 2010.

Last Thursday, the Development Assistance Committee of the OCED (the DAC) published the results of the monitoring survey.  The DAC is not known for hard-hitting criticism of its members. But even this mild-mannered organisation feels compelled to call the results ‘sobering’.

Of thirteen measured targets to improve the effectiveness of aid, just one has been met. What was this one milestone which donors were able to reach? They lived up to their commitment to talk more to each other (“Strengthen capacity by coordinated support”).

The DAC reports that the areas of progress have been largely on the part of developing countries. These include putting in place sound national development strategies and results frameworks, and improvements in public financial management systems. According to the report, the areas of little or no progress are overwhelmingly on the part of donors: aid is still not on recipient countries’ budgets, is no more predictable, and is becoming increasingly fragmented.

When developing countries fall short of targets set for them by donors, we say they are ‘off track’ and start to talk about cutting off their aid.  What happens when donors fall short of targets they have set themselves?

The DAC points out that although the overall results are disappointing, some good progress has been made in some places. That’s true, and it is interesting that there is no obvious pattern.  For example, though Tanzania is highly aid dependent, it appears to have been effective at imposing more discipline on donors.  Some of the results suggest that the survey leaves too much room for interpretation:  for example, Japan’s relatively strong performance against the Paris indicators is difficult to reconcile with perceptions on the ground.

The Paris indicators are not a direct measure of aid effectiveness. They are measures of progress towards goals which are thought by the Paris signatories to be associated with better aid. But that connection is tenuous: for example, though Tanzania has done well at pushing donors to comply with the Paris principles, nobody seems to think that aid in Tanzania now delivers more bang for the buck than aid elsewhere (rather the opposite, if anything).

It should be no surprise that progress towards the Paris principles has been slow.  The aid system represents a compromise between the interests of donors and recipients, mediated by organisations and agencies with interests of their own. For example, donors have not been willing to make aid more predictable.  That’s because there is political value to them in being able to dispense or withhold aid according to the latest fad or political pressure, and aid implementing agencies enjoy having the power of day-to-day control. Though retaining this discretion is estimated to reduce the overall value of aid by 15-20 percent, the political and institutional benefits to donors apparently outweigh the disadvantages of supplying less effective aid – perhaps because the people who suffer from ineffective aid don’t have votes in donor countries. Making an international commitment to fix this could help a little, because it adds very slightly to the political cost of lack of predictability. But the political cost of failing to meet this commitment is evidently too small to make a difference to the political calculation. That’s what we see in the monitoring survey: the proportion of aid that is classified as predictable has risen from 42% in 2005 to – drum roll – 43% in 2010: some way short of the target of 71% by 2010.

Can the forthcoming summit in Busan in November change this? It is hard to see how yet another conference with yet another communiqué will change these underlying political dynamics. The latest news is that Ban Ki Moon and Hillary Clinton are both planning to attend. Does the political weight of a communiqué increase in proportion to the size of the motorcades at the summit?

The political constraints which lead to ineffective aid are genuinely difficult to overcome.   This should be ‘sobering’ to donors as a measure of their inability to fix long-standing and well-documented problems.  But it should also be ‘sobering’ to those same donors who travel around the world pressing developing countries to implement reforms in the face of much more substantial political constraints.  If donors cannot implement something as simple and uncontroversial as coordinated country missions or common procurement rules, why do they expect developing countries to be able to implement changes in land tenure or public enterprise reform?

We should give credit to the DAC for getting an agreement to reform, putting in place a monitoring system, recording the progress that has taken place, and stimulating the debate about aid effectiveness.  But it is neither desirable nor sustainable that the donor club should be responsible for tracking the donors’ performance against their commitments.  A more independent watchdog would surely have reported donors’ failure to meet 12 out of 13 targets with a greater sense of outrage.

Finally, all this is becoming increasingly anachronistic.  The Paris principles are most obviously relevant to countries that are low income and stable.  But there are now just thirteen of those: most of the world’s poor now live in middle income countries and fragile states.  The DAC represents the donors who are members of the OECD, but does not include China and other emerging powers, foundations, private giving and NGOs, many of whom do not share the DAC’s view about what makes aid effective.   The challenge for Busan is to define the role of aid in helping to build a sustainable, resilient and inclusive global economy.

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.

It seems extraordinary that after 50 years of international aid, there is still no consensus on whether it works. Zambian economist Dambisa Moyo (Dead Aid) has argued that aid is not only ineffective, but is actually detrimental to development.  Bill Easterly (The Elusive Quest for Growth) says that ‘trillions of dollars’ of aid have had little effect.  Others, notably Jeff Sachs (The End of Poverty) and Roger Riddel (Does Foreign Aid Work?), have argued that there is plenty of evidence of the success of individual aid projects, and that it has brought about substantial improvements in people’s lives.  If we cannot even agree on whether aid works at all, how can we address the more important and nuanced questions such as how to make that aid more effective?

At the heart of this disagreement is not a dispute about the impact of aid but about what we mean when we ask whether ‘aid works.’

Microfinance is an example which mirrors the issues in the wider aid industry. Microfinance has often been touted as a bottom up solution to poverty. The Nobel Peace Prize 2006 was awarded jointly to Muhammad Yunus and Grameen Bank “for their efforts to create economic and social development from below.”  Give people access to credit, the story went, and they will be able to invest in businesses of their own. Instead of needing long-term support, the poor will be able to stand on their own two feet.  The Acumen Fund promises “Dignity not Dependence. Choice not charity.” This attractive prospect is one reason that microfinance has been so successful in raising donor funding, especially from foundations and private giving.

Following dozens of studies of microcredit and microfinance, there is little credible evidence that microcredit itself lifts people out of poverty. The two good randomized controlled trials find no impact of microcredit on poverty (though to be fair they have not yet been running for very long). As the evidence has challenged these grandiose claims, some in the microfinance industry have chosen to defend aspirations which are both more humble and more plausible.  First, there is growing recognition that much else besides access to credit is needed to enable poor people to run a successful business, and so microfinance can at best make a contribution to a wider set of circumstances needed for development.  Second, there is recognition that, even if microfinance is often used for consumption rather than investment, it is still a significant improvement in people’s lives if they have more control over their finances and are better able to deal with uncertainty and volatility in their incomes.  Third, microfinance may lubricate the process of experimentation and failure whichmay help successful firms and enterprises to emerge.

The rest of the aid industry would also benefit from a more nuanced account of its objectives. We often talk about aid as if it falls into two categories: humanitarian aid and development aid. But in reality this is a false dichotomy: most aid falls into neither category. More than 60 percent of aid is a long-term contribution to the provision of key services such as education, health, water and sanitation, and an investment in the institutions needed to provide them in the future. Improving people’s lives is a realistic and laudable goal. Measured against this more humble (but still very important) objective, there is plenty of evidence of the success of aid.  Aid has helped to abolish smallpox, to increase the number of children in primary school, and to give families access to clean water and improved sanitation.  Charles Kenny (‘Getting Better’) has convincingly argued that when measured by almost every standard other than income, the quality of life has improved substantially in developing countries. Foreign aid has made a significant contribution to these improvements.

It is tempting to make the bolder claim that investments in education and health also improve growth and development in the long run.  Perhaps they do – but, as with microcredit, the evidence for this relationship is weak. Why is it not sufficient to say that people everywhere should have access to these services – including financial services – whether or not this leads to long-term transformation of their economy and society?

Everyone wants developing countries to escape aid dependency, and most people recognized that this requires sustainable growth and jobs.  Because this is such a compelling objective, the development industry has been tempted to justify aid on these grounds.  But the evidence from opinion polls and focus groups suggests that the public is willing to support aid which demonstrably meets immediate human needs irrespective of whether this contributes to long-run growth.  By setting excessively ambitious objectives for aid, the industry risks alienating the public from their emotional connection with what aid can achieve, and asks to be measured by standards that it is unlikely ever to be able to show that it meets.

There are many flows of finance to developing countries which will contribute to investment and growth, including direct investment, portfolio capital flows and remittances.  The main drivers of growth will come from the country itself through private and public investment.  Aid is a small proportion of the finance for developing countries. But it is a precious resource because, unlike other sources of finance, it can help meet the needs of the most marginalized communities, women and girls, and people living in long-term chronic poverty.  If we want to see aid used effectively, we should demand that it is used for these purposes for which it has a unique contribution to make.  Just because growth is a priority does not mean it is a priority for aid.

Measured against reasonable claims about what aid can achieve, it is demonstrably effective.  As we have seen with microfinance, the industry damages rather than enhances its case by overstating what aid can achieve. By setting realistic objectives, we can both make aid more effective, and demonstrate the difference it makes.

Mr Speaker, everyone watching these horrific actions will be stuck by how they were organised via social media.

Free flow of information can be used for good. But it can also be used for ill.

And when people are using social media for violence we need to stop them.

So we are working with the Police, the intelligence services and industry to look at whether it would be right to stop people communicating via these websites and services when we know they are plotting violence, disorder and criminality.

I have also asked the police if they need any other new powers.

This has all the hallmarks of a Dangerous Dogs Act response. (That is Whitehall slang for a piece of poorly-conceived legislation which is implemented hastily to respond to a public outcry.)

There are many reasons this is a bad idea.  Here are two.

First, in a year in which social media has played  an important role in enabling citizens in Tunis and Egypt to overthrow their governments and, we all hope, move towards greater freedom and dignity, this would set an irresponsible precedent internationally. Which dictator or autocratic regime does not accuse protesters of ‘plotting violence, disorder and criminality’?  Do we want to make it harder for citizens around the world to organise themselves to overthrow repressive governments?

Second, social media has also played a positive role over the last few days. Twitter was used to organise groups of responsible citizens who went out on the streets to clean up after the riots. (David Cameron called the ‘broom army’, organised through social media, ‘the best of British’).  Pledgebank is being used to raise money to rebuild the iconic Reeves Corner building which was burned down in the riots.   I’m told that switching off the mobile phone networks after the 7 July bombings contributed to the chaos.

When the Egyptian government was reported to have shut down social networking sites in a bid to stop the unrest there spreading, the UK Foreign Secretary William Hague said:

I would urge the Egyptian government, and I have urged the Egyptian government, to respect rights of freedom of assembly and freedom of expression. It would be futile over time to try to suppress such things.

Perhaps when the Government reflects on the overall balance sheet of the impact of social media over the last year, they will conclude that on balance it has been a force for good.

What a contrast to Jens Stoltenberg, the Prime Minister in Norway, who said this after the (much more tragic) violence there:

The Norwegian response to violence is more democracy, more openness and greater political participation.

Update: Here is Jeff Jarvis in the Guardian.

(h/t Ian Thorpe)

In his blog post explaining the new policy, David Roodman explains why this is important.  It is intended to increase both the quality and credibility of our research, and to enable other researchers to use the data and the code.

Of course this is a little daunting for us too. As David says:

Fundamentally, then, the new data and code transparency policy is about putting the pursuit of truth first. We believe that this step is both right in itself and strategically smart. In statistical analysis, as in software, bugs are the norm. So placing more of CGD’s work in the public domain will inevitably expose mistakes. That can be a daunting prospect for an organization that prizes its reputation for high-quality analysis. But transparency serves the public good. And serving the public good is what CGD, as a charity, should do.

Our full policy is here (pdf).

(h/t Amanda Glassman)

It is at times like this that we get a lot of half-baked commentary about famine. We are told that the problem is drought, or over-population, or global warming. Special interest groups call for more money to be spent on agriculture. Commentators complain that we’ve given aid for decades and nothing gets any better.

So here are two things to keep in mind.

First, famine is not caused by drought or overpopulation or insufficient food production. As Amartya Sen explained in Poverty and Famines, people go hungry when they cannot access food, because they are too poor or because markets and governments fail.  Drought is neither necessary nor sufficient for famine.

Ed Carr says that this insight holds in the current crisis:

The long and short of it is that food insecurity is rarely about absolute supplies of food – mostly it is about access and entitlements to existing food supplies.  The HoA [Horn of Africa] situation does actually invoke outright scarcity, but that scarcity can be traced not just to weather – it is also about access to local and regional markets (weak at best) and politics/the state (Somalia lacks a sovereign state, and the patchy, ad hoc governance provided by al Shabaab does little to ensure either access or entitlement to food and livelihoods for the population).  For those who doubt this, look at the FEWS NET maps I put in previous posts (here and here).  Famine stops at the Somali border.  I assure you this is not a political manipulation of the data – it is the data we have.  Basically, the people without a functional state and collapsing markets are being hit much harder than their counterparts in Ethiopia and Kenya, even though everyone is affected by the same bad rains, and the livelihoods of those in Somalia are not all that different than those across the borders in Ethiopia and Kenya.

Map of the Horn of Africa by the Famine Early Warning System Network (FEWS-NET)

If you are interested in learning more, read Ed Carr’s book Delivering Development, and his blog. My colleague Charles Kenny makes a similar point in Foreign Policy.

Second, development aid works. Though there is considerable suffering, famine has been avoided in Ethiopia this time so far, and that is because of the safety net programme and disaster management system which has been set up by the Ethiopian government, with help from foreign aid. Remember 1984, and people leaving their land to make their way to feeding centres in Ethiopia?  Not happening this time. Why not?  Here’s what the BBC says:

BBC Africa analyst Martin Plaut says many people at the heart of the current disaster – in Ethiopia – have emerged relatively unscathed.  This is because the government in Addis Ababa has such an extensive safety net in place, he says.  Pre-positioned supplies mean the Ethiopian authorities could respond rapidly once the extent of the drought became clear.  The first food distributions began in February and have continued to the worst effected communities across a vast area. Communities are suffering, but the famine that has hit neighbouring Somalia has so far been avoided in Ethiopia and overall the disaster management system, built up since the 1980s, has worked.

Martin Plaut is no starry-eyed apologist for the aid system or the Ethiopian government.  But like me, he was in Ethiopia in 1984 so he knows what famine looks like; and he can see the difference in Ethiopia this time. As he points out, the investments that have been made over the past two decades have transformed Ethiopia’s ability to deal with bad rains. Ethiopia has suffered drought and famine about every ten years.  But now a determined government, backed by foreign aid, has put in place systems which have made Ethiopia more resilient and prevented a repetition this time of past tragedies.  If you are one of the Ethiopians who has put this in place, one of the hard-pressed development workers who has patiently assisted, or if you have contributed to aid, through taxes or donations, you should pat yourself on the back: bad as things are in the Horn of Africa today, the crisis would have been a lot worse without you.

Please spare a thought, and a few quid (or a few dollars) if you can afford it, for the 11 million people affected by hunger in East Africa today; and for the many aid agency staff working round the clock, often in difficult and dangerous conditions, to try to help them.

Update: Duck of Minerva thinks that Ed Carr and I are understating the role of physical factors.  Brian Kahn, on the other hand, agrees that “ The current famine in the Horn of Africa isn’t caused by drought. Rather, a complex mix of societal and political factors created a dangerous situation“.

There is a separate but related question of how we can get vaccines to be developed in the first place to protect against diseases which do not much affect people in rich countries. On this we apparently agree that it is a good idea to test commercial incentives such as Advance Market Commitments.

For vaccines developed primarily for industrialised countries, my view – which I expressed in an earlier blog post – is that we should use aid to make it more attractive, and more profitable, for pharmaceutical companies to invest in making these vaccines available in developing countries. The view of Dr Kamal-Yanni and Daniel Berman is that, on the contrary, we should “err on the side of the poor” by holding down prices, making these markets less profitable.

My ‘inevitable response’ is now on the CGD global health blog (and reproduced below).  It is all a bit down in the weeds, but the main point is that it is simplistic to suggest that existing vaccines (for example, against pneumococcal infection) can simply be rolled out at marginal cost in the developing world. I explain why in in the blog post. Unless we do something to make these markets more attractive for the private sector, we will continue to see delays in access to vaccines in poor countries.  In these circumstances, insisting on keeping prices down errs on the side of the ideology, not the side of the poor.

As always it would be great to have your views: comments are open on the CGD blog.

Adapting vaccines for low income countries

Dr Kamal-Yanni of Oxfam and Daniel Berman of Médecins Sans Frontières have responded to my earlier post which called for caution in trying to drive down vaccine prices.

They argue that vaccines which are developed for rich country markets should be available at the lowest possible price in developing countries:

… the return on the cost of most new vaccines comes from wealthy countries, since research and development (R&D) is targeted to those markets. Rotavirus and pneumococcal vaccines– two top priorities of GAVI were first developed for and have impressive sales in rich country markets. In 2008, Pfizer earned over $2.8 billion in annual revenue from the sale of its pneumococcal conjugate vaccine, Prevnar.  A New York Times article notes Prevnar sales are expected to top $5 billion annually by 2015.

For those vaccines that already earn multinational companies high returns on investments in the developed world, there is no risk to the viability of vaccine supply from low-cost production. In other words, companies will not necessarily abandon the market if the price is lower in developing countries if they are making healthy profits in rich markets.  Indeed, market segmentation is already a core principle, well established in the orthodoxy of innovator companies, therefore it is difficult to see why vaccine prices for such products should not be as low as they possibly can in the poorest countries and for the poorest people.

I completely agree with Dr Kamal-Yanni and Daniel Berman on the importance of the principle of ‘market segmentation’.  For products which serve people in industrialised countries and in developing countries we should encourage the practice of charging higher prices for richer consumers to cover the costs of research and development, so that the prices charged to poor consumers can be kept as close as possible to marginal cost. (I have written about that before, here and here.)  There is scope for a lot more thinking about how public policy can support and enable firms to practice this kind of price differentiation more extensively (for example, by using regulatory restrictions to prevent arbitrage).

But it does not follow, as Dr Kamal-Yanni and Daniel Berman suggest, that the prices of pneumococcal conjugate vaccines for developing countries should be ‘as low as they possibly can be’.  There are three reasons why it has been important to create additional incentives for private investment in pneumocooccal vaccines.

First, it is not simply a question of rolling out Prevnar in Africa and Asia.  Prevnar is a 7-valent vaccine which was developed for rich country markets and is not well adapted to preventing infection against the serotypes of pneumococcal infection which occur in developing countries.  The vaccines now being purchased under the Advance Market Commitment (AMC) are 10- and 13-valent vaccines which are better suited to the serotypes in developing countries.  Nor can vaccines which have been tested only in Europe and North America simply be distributed in other countries. The AMC has stimulated important research on the impact of pneumococcal vaccines in Africa and Asia (for example, gathering data for the first time on the impact on HIV-infected people).  It accelerated the process of obtaining regulatory approval.  It has also stimulated work on different ‘presentations’ (such as Pfizer’s 4-dose vial) which bring down prices and make it easier to get vaccines to people in more difficult environments.

Second, we want vaccine companies to scale up production very considerably to produce enough vaccines for people in developing countries.  We don’t have well-documented estimates of the cost of setting up a large-scale production facility, but informed speculation suggests that it costs somewhere between $100m and $400m.  Companies face a significant risk doing this: namely the possibility that they will spend the money on a new plant, and then get hammered by purchasers intent on driving down the price (for example, under pressure from Oxfam and MSF).   Once the plant is built, the producer has no bargaining power: they have capacity to produce millions of doses and nobody else to sell them to. This means the purchasers can force the price down to marginal cost, and so the producer won’t recover the fixed cost of the production facility.  To avoid that risk, the company may choose not to build the plant in the first place.  (This is known in economics as the ‘hold up’ problem.)   So if we want firms to build facilities to mass-produce the vaccines for developing countries, we have to agree a price in advance which covers this part of the fixed costs, and then resist the temptation to drive the price down once the plant has been built.

Third, the idea that we should just roll out the vaccine at the lowest possible price ignores the substantial benefits of further investment in research and production capacity, which will result in better and cheaper vaccines for everyone.  Merck is currently making a 15-valent vaccine for pneumococcal infection which – apparently because of the AMC – they plan to to produce at large scale at an affordable price for developing countries.  The AMC is attracting companies from emerging markets, such as FioCruz in Brazil (who have done a technology transfer deal with GSK) and manufacturers in India and China who are in late pre-clinical testing of formulations designed to meet the needs of developing countries.   Dr Kamal-Yanni and Daniel Berman compare the pneumo AMC with the Meningitis Vaccine Project, which has indeed been successful in many ways. But because the price has been set so low for the Meningitis A vaccine,  there is (as far as I know) no private investment in new and better vaccines, in contrast to the efforts being made to develop better and cheaper pneumo vaccines.

When governments and public authorities invest directly in developing and producing vaccines they need to manage carefully the possibility that there is, or may appear to be, a conflict of interest between these activities and their normative and regulatory functions such as licensing and recommending vaccines.  It is possible that some pharmaceutical companies may have been put off developing a new Meningitis A vaccine by the prospect of having to secure regulatory approval from public authorities who are themselves investing in an alternative vaccine.

We do not have to speculate too much about what would have happened if we followed the advice of Dr Kamal-Yanni and Daniel Berman and set the price of pneumo vaccines as low as possible.  We can see what happened when vaccines for Hepatitis B and Haemophilus Influenzae Type b (Hib) were developed for use in rich countries.   In principle, exactly the same ‘market segmentation’ principles should have applied in these cases. According to the view put by Dr Kamal-Yanni and Daniel Berman the firms could have recovered their investment in rich countries, and sold the vaccines at cost in developing countries.  But in practice that didn’t happen: it took at least fifteen years before those life-saving vaccines were available in developing countries.

It does not reflect well on the pharmaceutical industry that these vaccines took so long to be produced for developing countries.  But nor does it reflect well on public policymakers who failed to think about the incentives required to get them to do so.  Somebody has to bear the costs of getting regulatory approval, sorting out appropriate presentations for developing countries, and building large enough plants for mass production.  In some cases, such as pneumo, the vaccine itself may have to adapted. Firms are reluctant to bear these costs if they are unlikely to be able to recover those investment through sales, and if they perceive a risk that their high-price markets will be undercut by imports of low-cost substitutes manufactured for developing countries.

About two million people die each year of vaccine-preventable diseases.  Our reluctance to create incentives which make it profitable for pharmaceutical companies to serve these people is not “erring on the side of the poor”: it is erring on the side of ideology at the expense of the poor.

An alternative approach, favoured by Dr Kamal-Yanni and Daniel Berman, is to manage this work as a public sector led partnership like the Meningitis Vaccine Project.  These kinds of partnership and the AMC share some important characteristics: public authorities determine the strategic health goal, provide a subsidy to the private sector to develop and produce the vaccine, and set the price of the product. But there are important differences too. In the public-private partnership the subsidy is paid in advance to the chosen private sector partners, whether or not the vaccine is delivered.  In the AMC the subsidy is paid transparently though a higher price,  in proportion to the amount of vaccines which are actually delivered and used.  While the public-private partnership relies on the good sense and experience of the public authorities to choose appropriate partners and shape the vaccine development strategies, the AMC allows any firm – including pharmaceutical companies in emerging markets – to innovate and compete for part of the subsidy.  The AMC places more faith in the benefits of diversity and competition than the public-sector directed approach, and it links the subsidy directly to results achieved. While the public-private partnership puts public authorities in the possibly uncomfortable position of being both a producer of vaccines and the regulator, the AMC keeps those roles separate.

Dr Kamal-Yanni and Daniel Berman are concerned about “overly cosy relations” in GAVI, where pharmaceutical companies have 2 seats on the 27-member board, yet they seem less concerned about collaborations between the public and private sector which involve substantial grants to private firms, often with little transparency, which create a potential conflict of interest for public authorities.

I don’t have an ideological position on the respective merits of the private and public sector: each has advantages and disadvantages.  (I do plead guilty to having a bias towards more open, diverse and competitive approaches.)  You can make a case for developing medicines mainly in the public sector, based on the idea that the knowledge generated by R&D is a public good and ought to be free for everyone to share.   But that logic applies also to the development of medicines for families in rich countries. I notice that, in practice, most rich countries prefer to engage the resources, innovation and energy of the private sector, working alongside the public and non-profit sectors, in developing and producing new medicines.  Perhaps we want this kind of mixed economy because some people doubt that programmes directed by the the public sector alone will be able to deliver these products. I don’t want to live in a world in which we have one level of aspiration for technologies for our own health needs, which we choose to meet by a combination of public and private efforts, and lower aspirations for developing countries in which we rely on programmes funded and managed by the public sector alone.  But if we want the private sector to do this work too, we have to set appropriate incentives for them, rather than create conditions in which this cannot be a worthwhile business and then complain about their values when they don’t participate as much as we would like.

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:

1. Spend more through the multilateral system
2. Make aid more predictable
3. Make aid transparent, accountable and traceable
4. Build the accountability of governments to their parliaments and citizens
5. Focus on results and use this to simplify aid
6. Invest more in global public goods, especially new technologies
7. Focus aid on people in chronic poverty, and on women and girls
8. Leverage the private sector
9. Use innovative finance to increase the productivity of aid
10. 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.

First, a word about the report.  This is not a study by the World Bank, or a group of donors.   It is a study by Uwezo, an East African initiative hosted by three NGO networks: TEN/MET in Tanzania, WERK in Kenya and UNNGOF in Uganda, with overall quality assurance and management support from Twaweza.  They conducted their own survey (standardized across the countries) to test the literacy and numeracy of more than 100,000 children, the largest ever survey of its kind in the region.  When citizens themselves are telling us about whether their public services work, we should be paying attention.

There has been a remarkable increase in the number of children in school in East Africa since Uganda reintroduced free primary education in 1997 (followed a few years later by Tanzania and Kenya).   Over the ten years from 1999 to 2009 net primary school enrolment has risen in Kenya from 62% to 83%, and in Tanzania from 49% to 96%.

But the Uwezo report finds that the quality of education that those children receive is ‘very poor’.  According to the Uwezo tests, most of the children in Standard 3 had not reached the Standard 2 levels of literacy and numeracy.  Only by the time they reach Standard 7 are most children able to read and write at the levels expected in Standard 2.

Kenya’s pupils did best, followed by Tanzania and then Uganda, and there are large variations within as well as between countries.  The report has interesting things to say about the apparent reasons for the differences:

an important finding given the enormous resources invested in recent years in improving school infrastructure, was that school quality was weakly associated with literacy and numeracy levels. Children in areas with better school infrastructure did not perform better than in lower quality schools or more crowded classrooms.

The report finds grounds for optimism in the variations within countries;  the fact that some places do better than others suggests that improvements are possible within those contexts. The report speculates that quality is driven by non-observed factors such as the quality of teaching, practical accountability and teacher motivation.

The poor quality of education, despite considerable investment in school infrastructure, may perhaps be the result of what Lant Pritchett, Michael Woolcock and Matt Andrews call “isomporphic mimicry”.  The idea is borrowed from sociologists of organisations, and it describes the way in which organisations can sustain their legitimacy by the adoption of the forms of effective organisations in a way which camouflages a persistent lack of functionality.   This behavour may be partly a consequence of the way that donors work to increase service delivery in developing countries.  Pritchett et al observe:

Development agencies, both multi-lateral and bi-lateral, have very strong tendencies towards promoting isomorphic mimicry— encouraging governments to adopt the right policies and organization charts and to pursue best practice reforms—without actually creating the conditions in which true novelty can emerge, be evaluated, and scaled.

What can be done to improve education in Kenya, Tanzania and Uganda? The Uwezo report says:

Differences in performance among districts within each of the three countries, and between public and private schools, suggest that certain schools have ‘figured out’ how to achieve better results within existing constraints. Investigating why certain districts, and within districts certain schools, do so much better than others could provide important clues about what matters most for improved learning.

The report also suggests that Cash on Delivery aid may be a good way to create the incentives to improve quality:

One such approach, which is still untested but whose design has been informed by careful review of the evidence of what works, is called Cash on Delivery. The core idea here is that instead of funding inputs, a mechanism is created by which payments are made against the achievement of a specified and independently verified outcome, such as $50 per student who completes Standard 2 with 80% literacy and numeracy competencies. This approach has been original designed for improving the effectiveness of aid given to national governments, but the approach may be even more useful for how national governments create incentives to improve performance at district and school levels.

(By the way, I’m on the board of Twaweza, though I can claim no credit for this report.)

The 'precogs' in Minority Report

About seventy new people are detained under IPPs each month.  After serving the time deemed by the judge to be appropriate to their crime, they continue to be held in prison not for any crime they have committed, but against the possibility that they might commit a crime in the future.  They face the Kafka-esque burden of proving that they will not commit a crime if they are released, reversing the assumption of innocent until proven guilty.

The government has announced a review of indeterminate sentences. Ken Clarke, the Justice Secretary, said this on 21 June:

That is why, as the Prime Minister confirmed this morning, we are reviewing so-called indeterminate sentences of imprisonment for public protection, with a view to replacing them with a more sensible, tough system of long, determinate sentences.

The Labour Party Shadow Justice Secretary has reacted:

We will not accept plans that water-down the protection given to the public by Indeterminate Sentences for Public Protection.

We must hope that this form of words (‘not accept plans that water down protection’) has been carefully chosen not to preclude abolishing IPPs provided they are replaced with suitable sentences for serious offenders.

Kenneth Clarke is right to be trying to reform sentencing policy in general, and to get rid of IPPs.  I appreciate that it is Labour’s job to be the opposition, and they no doubt believe that many of their supporters would like to see tougher sentencing.   But I also think most people take their civil liberties seriously and fear an over-powerful state.

My father has been working tirelessly to get this unfair practice stopped (see here and here) and I’m proud of his determination and his willingness to stand up for justice.  IPPs are not supported by any of the professional groups, from prison governors to penal reform campaigners.  They have an appalling impact on the lives of some very vulnerable people.    Locking people up in case they commit a crime in future, and putting the burden on them to prove that they will not, is no part of British tradition or of British values.

I have written to my MP about this, asking him to support the abolition of indeterminate sentences. I hope you will take five minutes to do so too (just click here.)

The Millennium Development Goal is to halve, between 1990 and 2015, the number proportion of people living in extreme poverty.  The poverty line was originally defined as living on $1.08 a day (usually referred to as ‘dollar a day’ poverty).  In 2008 it was recalibrated to $1.25 a day.

About 1.4 billion people live below this poverty line: that’s about a quarter of the people in developing countries.

If you have traveled in a developing country, you may have noticed that some things seem really cheap.  Perhaps that bus journey only cost you 10 cents, or you remember buying beer for 30 cents. It is easy to assume that the reason people can survive on a dollar a day is that a dollar goes further in developing countries.

Apologies for being the bearer of bad tidings, but if that is what you thought you need to know that the poverty line is measured at purchasing power parity (PPP).

What does that little piece of jargon mean?  It means that the calculations take account of this difference in prices.  When we say that a quarter of the people in the developing world are living on less than $1.25 a day, we mean that they are living on the equivalent of what $1.25 would buy you in America.  Not what it would buy you in Mali.

Look at this video made by the World Food Program showing how much food you can buy with $1, which in the video they say is worth 16 Ethiopian Birr.  (That’s the current official exchange rate).  The point of the video is to show that that it is very difficult to buy a day’s food with 16 Ethiopian Birr.

Unfortunately the WFP have got their sums wrong, because the poverty line is measured at purchasing power parity.  The poverty line in Ethiopia, below which 30 million people live, is not 16 birr a day but 4 birr a day. (It was 3.44 birr in the 2005 data used to calculate the number of people living in poverty.)

A dollar buys you 16 birr at the official exchange rate

So if 16 birr doesn’t buy you very much, how can people possibly survive on the equivalent of 4 birr a day? Part of the answer is that the WFP video also distorts things in the other direction by buying food at a shop in Addis Ababa.   Prices are much higher in Addis and you’d get a lot more food for your money in rural areas. (Unless my ears are deceiving me, the video also slightly exaggerates the cost of food in Addis: the shopkeeper tells him that the potatoes are 6 birr, which he apparently mishears as 12 birr.)  But even in rural areas you’d still end up with less food for 4 birr than is shown in this video.

I’m sorry to single out the WFP (though they should know better). As I found out when I mentioned this on Twitter, a lot of people haven’t realized that poverty is measured at purchasing power parity.  The world’s poor are possibly poorer than you imagined.

This blog post originally appeared on the Center for Global Development Global Health Policy blog.

Maurice Hilleman may have saved more lives than any other scientist

Maurice Hilleman may have saved more lives than any other scientist.  He developed eight of the vaccines widely used around the world:  for measles, mumps, hepatitis A, hepatitis B, chickenpox, meningitis, pneumonia and HiB. Hilleman worked throughout his career at Merck, a pharmaceutical company.

Last week, donors pledged $4.3 billion to GAVI to help immunize 250 million children by 2015.  Most of this money (over 80%) will come from four donors: the UK ($1.3 billion), the Gates Foundation ($1 billion), Norway ($677 million) and the US ($450 million).    Other donors also generously doubled their previous commitments, and Japan and Brazil gave for the first time.

We should heap praise on donors for this. Childhood vaccination is among the most successful and cost-effective development interventions (pdf).  When the Expanded Programme on Immunization (EPI) was launched in 1974, less than five per cent of the world’s children were immunized during their first year of life. Today, about 80% of children receive the basic package of six life-saving vaccinations (polio, diphtheria, tuberculosis, whooping cough, measles and tetanus), saving about 3 million lives a year.

And what a difference it has made.  Smallpox has been eradicated. Polio may be next.  The number of children dying of measles has declined by about 80% from 733,000 deaths in 2000, to 164,000 in 2008.  It is easy to become complacent about success on this scale.  Now that many fewer children die of these diseases, we are in danger of forgetting that they were ever a problem, and the role that vaccination has played in ridding us of them.

We have not only the medical technology, but also the health systems, skills and logistics to reach children across most of the developing world. So we could also reach children with vaccines which are still considered too new or too expensive to be widely used in developing countries, including those against pneumococcal disease, rotavirus, meningitis,  hepatitis B, yellow fever, cervical cancer, rubella, typhoid, and Japanese encephalitis.

Backing vaccination with big money is an astute political move. Taxpayers understand the idea that every child should have the same vaccines as their own children; and vaccination programs clearly work.

This is not just good politics: it is good development policy too. DFID recently conducted an exhaustive review of the value for money for the taxpayer from 43 multilateral organisations.  GAVI was one of the top-rated organisations, along with UNICEF and the Global Fund.  Vaccination is one of the most reliably cost effective, life changing development interventions that money can buy.  It ought to be a no-brainer.

Save the Children UK and ONE both ran impressive campaigns supporting a large GAVI replenishment, and the new donor commitments were welcomed across most of the mainstream development community.  But a small number groups – notably Médecins Sans Frontières and Oxfam – have criticized the way that GAVI works.  (For example, Daniel Berman from MSF appeared on Newsnight to criticize GAVI).

These groups are clear that they support the objective of greater access to vaccination; but they say that donors could make better use of the aid budgets by by pushing pharmaceutical companies for lower prices. They have accused GAVI of having too cozy a relationship with drug companies, which have two representatives on GAVI’s 27-person board.

Getting a better deal

MSF and Oxfam are certainly right that lower prices would mean that a given vaccine budget could go further: we could immunize more children, and so save more lives.  If we think vaccination is important for development, we should do whatever we can to make it as widely available as possible. Oxfam and MSF say they want GAVI to take three steps:

first, full transparency about the prices GAVI pays; second, forceful action by GAVI to use competition to get a better deal; third, all pharmaceutical companies should step down from the GAVI Board because of their clear conflict of interest.

I have no argument with the first objective, and I’m glad to see that UNICEF has announced that it will be publishing vaccine prices on its website.

But the other two objectives (getting ‘a better deal’, and removing pharmaceutical companies from the GAVI board) are seem to me to be potentially reckless.

There are, in principle, two kinds of ways to cut prices.  One way is to reduce the cost of developing and producing new vaccines.  These include simplifying regulations, shifting production to lower-cost places, and reducing or diversifying risk.  The second way to cut prices is to squeeze producers, and so get a better deal for purchasers by reducing the profits of the pharmaceutical companies.  We might be able to do this, for example, by using the market power of UNICEF (which purchases vaccines on GAVI’s behalf) to push prices down, or by bringing more suppliers into the market so that competitive pressures make it harder for any firm to make big profits.

The first kind of price reduction – reducing costs – is a net benefit to society (other things being equal).  If we can do it, we should.  There is a big and important agenda to pursue here.  Long term commitments to GAVI, enabling long term contracts with pharmaceutical companies, are an important way to bring down the costs of production.  GAVI can play an important role, and I would argue (indeed,I have argued) they should be doing it more.   Amanda Glassman and colleagues set out a great agenda on this in a recent working paper.

The second kind of price reduction – transferring surplus from producers to consumers – is a zero sum transfer from the shareholders in pharmaceutical companies to governments and aid agencies.  That may be desirable on distributional grounds but it may have long-term consequences which we come to regret.

We want pharmaceutical companies to develop new vaccines, and to improve existing vaccines.  For diseases which hardly ever affect rich countries – like malaria – we want them to go ahead and develop the vaccine anyway.  And when they invent a new vaccine for diseases which affect people everywhere, we want them to trial those new vaccines in poor country settings as well as industrialised countries and, if they work, to invest in manufacturing capacity to produce the millions of doses needed to vaccinate people  across the developing world.

So this is the dilemma: we want pharmaceutical companies to invest more in developing and producing new vaccines and drugs for developing companies.  But once they’ve done so, we want those products to be available at the lowest possible price, ideally free.

Be careful what you wish for

In simple economic models, we don’t need to think too hard about protecting the interests of companies. We encourage competitive markets, and let competition drive the price down to the marginal cost.  That enables firms to make a reasonable return on their capital, leaving the rest of the surplus in the hands of the consumer.

But drugs and vaccines are different in a crucially important way.  They are characterised by massive up-front costs of research, development and testing, and relatively low costs of production once the vaccine has been approved.  These products are only profitable if the companies have some way to recover their up-front development costs.

So what should the price be?  If the price is forced down to marginal cost – as it would be in unrestricted competition – the firm which has developed the product will never recover the costs of its investments.  If we want the firm to consider doing this again (or indeed to consider doing it in the first place) then the price paid to the firm has to stay above marginal cost, at least for a time, so that the firm gets its money back.

An imperfect answer to this has been the patent system: to grant the firm a temporary monopoly so that it can keep the price above marginal cost and recover those development costs.  But this way of paying development costs has huge disadvantages: namely that charging higher prices excludes some consumers from the product. That may not be a problem if the product is an MP3 song or a computer game, but it is a helluva  price to pay when the product is a life-saving vaccine.

The other potential problem with paying above marginal cost is that firms may be able to make excess profits. We want firms to be able to cover their costs, and reward their shareholders for the risk they have taken, but we don’t want them to hold society to ransom if they have invented a life-saving drug or vaccine.

So we want a mechanism which gives firms a reasonable return on their investment but which does not allow them to make excessive profits.  That in turn means neither allowing competition to force the price down to marginal cost, nor allowing firms to charge inflated prices.

Achieving both access and innovation

Oxfam and MSF want to see more manufacturing by producers in developing countries, as a way to bring the price down.  Such a move has two effects: one good and one iffy.  Moving production to lower-cost locations may bring down the total cost of production: that must be good.  But companies  are not going to invest in future vaccines if they know that they will be undercut by manufacturers making copies of the new product, having borne none of the development costs.  So untrammeled competition may be good in the short run, if it brings down prices, but bad in the longer term if it chokes off future investment in these products.

The analysis of the vaccine market by Oxfam and MSF alleges that prices are too high.  The entire policy agenda rests on the judgement , so it is unfortunate that the report offers no evidence to support it.  All the report tells us is that ‘actual prices are not determined in a simple way by, or justified by, R&D costs’.

Just because Oxfam and MSF offer no evidence for their claim doesn’t mean that they are wrong.  Perhaps we are paying too much for these vaccines, and the companies are making excessive profits in these markets.  After all, a lot of other business are making a lot of money out of the aid industry.  It is hard to tell, because these companies are extremely secretive about the actual costs of development and production (in a way that I find rather sinister and which certainly does not help their cause).  I have no difficulty believing that many pharmaceutical companies would be trying to make profits from developing countries if they could.

Here’s why I don’t think that is very likely that they are.  We don’t see firms lining up to develop new products to tackle the health problems of people in developing countries. We don’t see them rushing new products to market in developing countries.   We don’t see them investing in the adaptation of existing products, or in the investment of large scale plant needed for large scale production.  On the contrary: over the decades before GAVI was established, we saw fewer and fewer firms seriously engaged in medicines for developing countries.  If firms are making huge profits on selling drugs and vaccines for developing countries, why isn’t there a gold rush?

That isn’t a very satisfactory basis for a judgement. But let’s consider the balance of risks.  If I’m wrong, and we are overpaying for vaccines, the damage is that some of the aid budgets of rich countries is unnecessarily bloating the coffers of Big Pharma.  But vaccines are a hugely cost-effective development intervention: even if we were paying twice as much as we should for them, they would still be saving lives more cheaply than almost anything else we do. And as news spreads of the handsome profits to be made, more firms and investors would be attracted into developing, manufacturing, registering and selling new products for developing countries. But if Oxfam and MSF are wrong, then driving down the returns to pharmaceutical companies will reduce their interest in these markets.  There will be less research; less investment in large-scale production; and products will be brought to markets more slowly. The consequence will be that millions of people will be denied access to life-saving products.   Given that we can never get the prices exactly right, I’d rather err on the side of making these markets too congenial for pharmaceutical companies, and so attract more businesses to the field, than making the environment too hostile for them and driving them away.

The MSF and Oxfam paper implies that they believe that prices should be pushed down to the lowest possible level, because this will increase access. If that is their view, they do not tell us how firms will be encouraged to engage in these markets in future; if that is not their view, they offer no insights into how they would prevent the price from falling too far or how we would know when we’ve got there.

The value of partnership

One way to achieve a combination of innovation and investment (requiring higher revenues for firms) with access for the citizens of poor countries (requiring lower prices paid by purchasers) is to use aid budgets to make up the difference.   GAVI has a huge role to play in making this happen. Making developing country markets more valuable for private investment is a legitimate, high-value use of aid.  But we put those benefits at risk if we have appear to have ideological objections to using aid to support good returns for pharmaceutical companies when they engage in developing countries.  That is why I’m concerned about the recommendation that the pharmaceutical industry should be kicked off the GAVI board.  Max Lawson of Oxfam calls this the ‘thorniest issue’.

GAVI was established as an alliance of governments, international organisations, donors, research organisations, firms and civil society working together to increase access to vaccinations.  The 27-seat board has one seat for an industrialised country firm, and one for a developing country firm.   Those firms are hardly over-represented: there are ten government seats.  Civil society also has one seat – exactly as many as rich country pharmaceutical firms.  Every member of the board has a profound interest in the decisions of the alliance – sometimes a shared interest with the other stakeholders, sometimes competing interests.

The benefit of having pharmaceutical companies engage in the alliance is obvious: they understand the economics of their industry better than anyone else. If we want to figure out what we need to do to get more vaccines produced for and distributed in developing countries, we have to work closely with the firms who do it.

That model is yielding benefits.  Vaccines against pneumococcal infections have been rolled out much more quickly in developing countries, not long after they became available in industrialised countries, in stark contrast to the 15 year delay in the roll-out of previous vaccines for HiB and Hepatitis B.  GAVI has brought together governments and firms to bring down the price of rotavirus vaccine for developing countries.

MSF and Oxfam are not entirely explicit about what they see as the main risk of industry participation but their main concern seems to be that firms have somehow overcome their numerical inferiority to capture the GAVI board, leading it to collude to pay too much for vaccines. If that were true, it would indeed be a matter for concern.  But it depends again on their view that prices are too high.

Given their concern to bring down prices, and ensure access in the least developed countries, MSF and Oxfam could speak out more energetically against  PAHO’s  ’most favored nations’ clause which prevents vaccine companies from charging least developed countries a lower price than they charge in wealthier middle income countries like Brazil.  Yet the NGOs seem strangely reluctant to take this on.  Perhaps attacking the pharmaceutical industry is easier, if lazier, than challenging the policies of governments of emerging markets?

Let’s show some love to Big Pharma

My colleague Charles Kenny has shown that over the last century there have been massive improvements in the length and quality of life even in countries whose incomes have hardly changed. Countries with GDP per person of $300 in 1999 have approximately the same life expectancy (46 years) as people had in 1870 in a country with an income ten times as great. Charles lists five countries in which incomes fell by an average of 18 percent over forty years, yet life expectancies increased in all of them over the same period, by an average of 40 percent.  How has this happened?  In large part as a result of the development and use of vaccines, drugs and contraceptives.

Development of new medicines has almost always depended on a combination of public and private investment.  As we know from the story of Maurice Hilleman, many of the most important breakthroughs have come from scientists working in pharmaceutical firms.

Chart showing how the relationship between infant mortality and income has changed over the last century

There is plenty of reason to maintain a healthy suspicion of pharmaceutical companies. There are plausible allegations of unethical clinical trials, misrepresentation of data, irresponsible marketing and corruption. I find the industry’s obsessive secrecy sinister.  I don’t like the industry’s zealous protection of intellectual property rights, which inhibits the spread of ideas and society’s technological progress.  I share the widespread suspicion of companies that are too big, too rich and too powerful.   I’m sure that many pharmaceutical companies would be happy to gouge the market if they were given the opportunity to do so.   Nonetheless, it is a shame that an industry which has done so much good for humanity – including in developing countries – is so widely vilified.

We have seen massive improvements in health in the last fifty years, far outperforming growth in incomes, as a result of new vaccines and drugs mainly brought to us by private pharmaceutical companies, on a platform of scientific research conducted in or funded by the public sector. You could make a pretty compelling case that the pharmaceutical industry has done more than the aid industry to improve the lives of poor people.

Conclusion

The decision last week by a group of donors to put a lot of money into GAVI to pay for vaccination was one of the very smartest, most humane decisions they could have taken.  They have been generously praised from many quarters, and rightly so.

A combination of publicly-funded research and the market-driven engagement of pharmaceutical companies has resulted in the development and production of vaccines and drugs which have had a huge, positive impact on people’s lives in both rich and poor countries.  We don’t want firms to be making excessive profits, least of all out of the aid budget.  But I see no signs that this is what is happening.  If anything, the opposite seems to be true.  Over the years, partly out of an abundance of concern to increase access by keeping prices down, we’ve made things tough for firms wanting to sell to developing country markets. The result: not enough vaccines and drugs for diseases which mainly affect people in poor countries, and too slow a roll-out of new products.  If we want to reverse that, we should be trying to make these markets more profitable.

Of course it is important to bring down the price paid by developing country governments, to prevent high prices from excluding poor people from access to these life-saving products.  We should do everything we can to bring down costs – including looking again at how we can cut the regulatory burden, take advantage of low cost production, and reduce uncertainty.   But we should be very cautious about driving down prices merely by squeezing pharmaceutical companies harder. We have to weigh our pleasure from poking the rich and powerful in the eye against the enormous damage we will cause if we drive firms out of these markets. A much smarter if less satisfying approach is to use aid budgets to bridge the gap between reasonable returns to the pharmaceutical industry and prices that the developing world can afford.

Declaration of (non) interest:  neither I nor any programme on which I work is funded, or has ever been funded, by the pharmaceutical industry.

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Nick Kristof has a good article (if a little simplified) in the New York Times today about randomized trials, which he describes as ‘the hottest thing in the fight against poverty’.  This new wave of rigorous evidence about impact is helping us to understand which policies and programmes in developing countries work well (whoever pays for them) and which do not.

I especially enjoyed his digression about the importance of economists:

When I was in college, I majored in political science. But if I were going through college today, I’d major in economics. It possesses a rigor that other fields in the social sciences don’t — and often greater relevance as well. That’s why economists are shaping national debates about everything from health care to poverty, while political scientists often seem increasingly theoretical and irrelevant.

Economists are successful imperialists of other disciplines because they have better tools. Educators know far more about schools, but economists have used rigorous statistical methods to answer basic questions: Does having a graduate degree make one a better teacher? (Probably not.) Is money better spent on smaller classes or on better teachers? (Probably better teachers.)

I suspect not everybody will agree with this.

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.

I recently went on a business trip with three members of the British ruling classes. The late-night banter over drinks was predictably excellent. Sometimes, though, we had to work. When that happened, my companions showed up unprepared and without notes – and did just fine. No wonder, because their entire education had been a lesson in winging it. They knew that all you need to succeed is to speak well, and that’s what the British ruling classes do: they speak well.

… You also need to perform in a peculiarly British ritual: the Oxbridge interview. It works like this: you are 17 years old. You are wearing a new suit. You travel to an Oxbridge college for your interview. You find the tutor’s rooms. Perhaps you’re served sherry, which you’ve never seen before. Then you talk. The tutors, sprawled on settees, drawl questions about whatever is keeping them awake.

For my interview at Oxford, I sat in an ill-fitting new suit and had to explain the difference between ‘precise’ and ‘accurate’.  If this was an issue keeping the tutor awake, he concealed his excitement at my answer pretty well.

The focus on speaking well is mainly an Oxford and Cambridge thing. The tutorial system – in which you have an hour-long meeting once a week with your tutor, at which you read out your essay – teaches people to wing it, and very often not much else.   Life was quite different at the LSE, where I benefited from a fairly technical, mathematical education in economics.  The trouble is too many people in the British establishment have been educated only at Oxford or Cambridge.

The article would be fun if it wasn’t also rather serious:

Numbers remain a challenge for Britain’s ruling class. It treats the City as a magical moneymaking machine, whose demands are best granted because lord knows how the thing works. Even the finance minister, George Osborne, has no education in economics beyond whatever he picked up studying history at Oxford. British public debate just doesn’t feature many numerate people such as Warren Buffett, Bill Gates, Mark Zuckerberg or China’s ruling engineers. Britain’s own excellent engineers and quants are stuck in the engine room while the rhetoricians drive the train.

More than a decade ago a report for the UK Government reached pretty much the same conclusion. It called for “a comprehensive and coherent programme for creating the conditions in which rigorous analysis is routinely demanded and delivered.”  (The present Cabinet Secretary, Gus O’Donnell, was on the steering committee for the report.) I wonder how much has really changed since then.

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.

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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?)