A market for aid

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

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

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

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

I’m looking forward to comments and feedback.

10 thoughts on “A market for aid”

  1. I read your paper with great interest. The abstract sounded like this would be the paper I had waited for. Unfortunately half-way through I realised that it wasn’t. I agree with the general idea and I would think a lot of people working in the business wished there were less big plans. However, I think that the paper fails to tackle the politics of aid, especially the relationship between the donor and recipient government. It does note at some point that aid disenfranchises citizens in recipient countries, but the paper does not suggest a way to tackle the anti-developmental incentives aid delivers. The paper identifies the problem of aid as the inefficiency of its services. Surely this is an important field. BUT isn’t the fundamental problem of aid rather that it destroys the capabilities of developing countries to foster development domestically? If donors are moving away from technical assistance towards direct budget support, shouldn’t the emphasis lay on increasing the understanding of the political economy of aid? I feel that your paper sort of blinds out these political obstacles, but I would identify them as the most important ones. Still, thanks for writing this interesting paper!

    Owen replies: I agree that some aid can be an obstacle to domestic accountability; and I agree that the impact of aid on the political economy in developing countries is an important topic (one that I have written about before – for example, here.) There are also lots of good examples of aid being delivered in ways that enhance, rather than undermine, domestic accountability. But this paper is about a different – though related – issue, namely impact of political economy – mainly of donor countries – on aid.

    There is an important link, though, between the paper you wanted and the paper I wrote. In the market for aid that I am advocating, organisations would compete to deliver aid in ways that deliver results and which enhance, or at least do not undermine, local accountability. We should look for ways to tackle the problem you highlight: not through ideology and bureuacratic infighting, but through an open competition for innovative approaches and rigorous demonstrations of effectiveness – including these wider effects on governance.

  2. Thanks for a stimulating paper. I’m a relative novice to the development literature, but your discussion of how the aid system rests in a kind of ‘political equilibrium’ seems apt. Given that, I think it’s a fair question, which I think you acknowledge, about how the system will develop from within the mechanisms needed to transform the overall political economy of aid in order to shift the equilibrium in a more positive direction. I’m somewhat inclined to think that the aid system will simply continue to tinker with its internal architecture until the overall ground under it shifts, e.g., with the rise of the new economies and new donors in the developing world itself. Still, thanks for a helpful discussion.

    Owen replies: Thanks Andrew. Your point is a good one – and the most excellent Nigel Thornton made a similar point at the ODI seminar on Friday.

  3. Owen,

    I was hoping to get to the ODI event on Friday but had to settle for watching online. I thought it was an excellent presentation which sparked off a very interesting discussion. I think I share the view that your analysis of the problem is spot-on and indeed so persuasive that it is much more difficult to see how (or why) significant change will happen given the forces behind the current equilibrium. But we have to start somewhere and I hope your ideas gain some traction in the aid agencies.


  4. Owen,

    A first class paper in my opinion. As someone who specialises in aid effectiveness, I am all too often frustrated with the failure of the aid system to deliver on its promises, implement its commitments and address the real problems on the ground.

    It sometimes really is as simple as more trial and error, scaling what we do well, cutting back what we don’t, and getting better information. Indeed, closing the information gap alone would do a world of good. In countries where I have worked, I have very commonly spoken to donors, and to Governments, who simply don’t know what’s going on, what each other are doing. So people don’t know where the gaps and overlaps are. They don’t know what works and what doesn’t. They don’t know if donors are actually doing what they say they are and meeting their commitments. And the link between “beneficiaries” and those funding the aid is, as you say, usually very, very weak.

    We are in this strange world with aid where the usual market contract is also not there – if I like it I buy it, if I don’t or it’s too expensive then I go to your competitor – nor is the social contract – if you run the country well and deliver the services we want then we re-elect you. Instead aid agencies are paid by one group and deliver to another who don’t choose them, pay them, or elect them. But the recipients are still expected to say thank you and not complain, after all it’s free money. And they are well aware of this when the evaluation team turns up in their village, who themselves are well aware that their contact is paid for by the aid agency. So there’s no natural selection rewarding what works and giving us more of it, and getting rid of what doesn’t.

    I’ve also sat through many donor coordination meetings that repeat the same good intentions month after month, year after year, but have no one to actually push implementation forward and so function like a kind of polite old boys’ club with everyone careful not to criticise one another’s ineffective practices for fear that this might invite the same kind of criticism back. The incentives are not there.

    In addition to the lack of market contracts, social contracts, and incentives, I often feel that some of the lack of rigor and accountability in the aid buisness is due to this underlying, unspoken assumption by those in it that “because we’re doing good, we’re automatically doing it well” and that recipients should be happy with what they get. What’s needed is a stronger recognition that there are taxpayers paying for this and that we are accountable to both them AND to the beneficiary to deliver aid in the most effective way possible. And to keep trying to improve it.

    You give real, practical, implementable ideas for what to do about the problems you highlight, how to address things like the broken feedback loops, the wrong incentives, the lack of transparency etc. all of which I believe have great potential to function in reality. These are exactly the kind of things needed to bring real change on the ground. As a consultant, I particularly like the idea of the online market for technical assistance with feedback and ratings (It has to be called C-bay of course).

    All the Best,


  5. Owen,

    I think you’ve really put your finger on the problem, and the most promising paths to a better system. It would be very interesting to survey multilateral and bilateral donors and ask them how willing they would be to untie aid, and take other steps towards the creation of a market for aid, and perhaps also to ask them what they’d see as the major impediments and areas of resistance. Do you have any sense of this, just from your conversations with people?

    In some economic models, that deal with principal agent and/or coordination problems, especially in the public sector, it is sometimes supposed that agents derive utility from “doing the thing themselves”, that is, they’d rather be able to say “We built that hospital” than “We paid somebody else to build that hospital more cheaply than we could have done ourselves” … and this makes a big difference to the set of feasible outcomes. Do you think something similar is at work, in aid?

    I suppose some of the commentators above might have a point that the donors themselves might make little attempt to disrupt the equilibrium themselves, and that the kicker will have to come from the outside. Technology is one obvious potentially “disruptive” factor, and you mention social networking and the scope for new forms of information exchange, monitoring etc. but I have a hard time evaluating how realistic such ideas are. It’s easy to be naive / optimistic when it comes to technology (one laptop per child. I’m not even sure how to get to grips with this question.


  6. From my little experience with an aid recipient NGO in India, I definitely agree with you.

    This NGO is probably an approximation, a microcosm, of the aid architecture in place. From 7 donors in 2004 to 15 in 2007, the organisation was faced with the challenge of tracking different reporting guidelines, expenditure tracking systems, billing guidelines, auditing requirements, currency conversions, not to speak of a steady stream of donor missions.

    In my view, what suffered most was organisational learning. And there wasnt much any donor really did to help. One of the main weaknesses of the NGO was its inability to attract and retain fresh talent (or experienced hands) – an area where the galaxy of donors did precious little to help (there is tremendous potential for “technical assistance” at the micro-level, I think). On the other hand, anyone that could speak some English and put a report together was kept busy handling donor relations, which beyond a point, became a painful chore. And here, I am not even talking about multiple sectors of work – just multiple donors for the same sector.

    Sure, it is not all bad. Some donors were excellent and the NGO learnt a lot about putting good systems in place and managing knowledge gathered from the field better. However, I have no doubts that the senior management of the NGO and those who were in coordinating positions (and not burdened with the rigour of frontline implementation) did not nearly learn enough from its own successes and failures and in fact, was primarily focused on fulfilling the minimum requirements of each donor and the organisation. As a result, the NGO lost out on most of their time and inputs on facilitating internal sharing and learning.

    I always questioned myself about how productive I was being in that system and the simple answer was always that I had a hand in keeping the machine moving. But what was the opportunity cost of the time I spent drafting and editing reports? And was there a better way of managing the NGO-donor relationship so more time could be found for working with field teams and other staff? In the haze of day-to-day activities, it is so easy to forget the need to look for an alternative – to ask how the system can be overhauled instead of oiling a new broken bit each day.

  7. This is a GREAT paper Owen.
    While reading, I am thinking about how the framing and insights “fit” what I know about how health development assistance.
    An observation on what drives poor program selection. In health development assistance it is not the case (as you suggest in para 35 citing Miguel and Kremer) that programs/ activities which are not sustainable are LESS able to attract funds. They just got that one wrong. Even a casual perusal of global health programs shows huge amounts of funding going to less sustainable activities (AIDS treatment for example), while system strengthening activities are much harder to get funded – though they usually have arguably more impact post-program. Even in selecting program activities, sustainabiity is rarely prioritized.

    Jeremy Shiffman recently wrote a thought provoking piece in the WHO Bulletin on what makes a particular health program more (or less) attractive to funders.

    He argued that health issues that have been successful in presenting themselves as SEVERE and NEGLECTED are more successful at attracting resources. They also need to be convincing in having a “solution”. To be attractive in this sense, the problem has to be (or at least look) tractable, and the program activities have to be able to predictably generate sizable results (however defined). So AIDS treatment and immunization campaigns and malaria (especially bednet handouts) can win in this kind of a competition. De-worming and health system strengthening…not so much.
    I think it’s well worth a read:http://www.who.int/bulletin/volumes/87/8/08-060749.pdf

    In any event, looking sustainable isn’t a critical factor.

    Thanks for writing this fabulous paper….

  8. Pingback: La longitud de la cadena y la relación principal-agente « Las Danaides

  9. Pingback: The Fragmentation of Humanitarian Aid: Market failure leads to planning and broken networks. | Osmosis

Leave a Reply

Your email address will not be published. Required fields are marked *