Global Development: Views from the Center

Perhaps these two positions are not as far apart as it first appears. Mr Easterly correctly critiques the current mishmash of aid delivery systems for not reaching the poor. Mr Radelet correctly identifies the good that has come from aid programs over the years and suggests that by improving how we give it we can make it more effective.

But how much of the funding appropriated in the name of official development assistance is in fact designed to alleviate poverty in the first place? US foreign aid legislation in particular is cobbled together each year not as a coherent whole but often as a framework to which a variety of parochial interests are attached. In recent years these interests have been as likely to focus on political change, security assistance, or promotion of US objectives, as they are to address conventional sectors like economic growth, health or institution building. It seems unfair to count all of these activities, delivered as they are by a variety of institutions often with differing missions, under the rubric of poverty reduction.

We seem to have drifted away from the basic intent of improving the economic and social conditions of the world’s poor. Improving how we deliver aid must begin with a reexamination of why we deliver it, and if the purpose is not poverty reduction then we should cease to label it as such.

We should not frame a debate on how to improve aid effectiveness around top-down vs. bottom up. Big plans have their usefulness for mobilizing resources and increasing focus on specific, measurable problems. The problems occur when, as Easterly has demontrated ad nauseum, the push of big plans do not build in mechanisms for getting customer feedback or buy-in. That is where we should be focusing our efforts-- finding new, cost-effective ways to balance the interplay between big plans and big resources and the people at the grassroots level who need to own them and make things work. It is not as simple as "getting the money to the poor." Who speaks for the poor? The elected representative? The unelected representative? The village chief? There are pitfalls no matter who you work with. Let me offer one new approach from the business world. Why isn't there the equivalent of a venture capital firm in development? Why can't a donor create a large pool of funding that social entrepreneurs can apply to have their ideas funded? One out of ten ideas might work, but at least it would create incentives (which don't really exist) for people in developing countries to think creatively about their own solutions to their problems.

I agree with Easterly's suggestion that "The right response is to demand independent evaluation of aid agencies. The right response is to shift the paradigm and the money away from top-down plans by "experts" to bottom-up searchers" -- would love to know his suggestions for the next three steps that should be taken, and by whom, to get this paradigm shift underway.

If I could make a comparison to domestic economies in developed countries. Who decides what my material needs are (in Australia)? Me and pretty much only me. I buy what I want within my means. I probably spend $3 per annum on pens, like most Australians. Some probably spend more and some probably spend less. All those good quality pens are delivered to me by the market. There is no department for pens or department for evaluating pen quality. But working pens make their way to me none the less.

Why can’t aid donors allow individuals to make such decisions in developing countries? Why can’t 100, 000 people in Papua New Guinea each have $50 per annum to spend on what they choose?

Which is more likely to create the division of labour that creates wealth - $5 million to a economic governance program at the national level or 100,000 Papua New Guineans spending some money on things they views as useful to their livelihoods – pens, computers, clothes, books, food, visits to the doctor, school? Perhaps conventional ‘planned’ aid would work better if coupled with a little of this sort of demand side aid.

If aid was disbursed in this way, we could leave it to the Papua New Guineans to work out what the aid going to them should be spent on. Aid delivered in this way might also provide, in a sense, some independent evaluation of aid. That is the market could tell us what is valued by the recipient, rather than the donor telling us what is valued by the recipient.

1. What is foreign aid? In an earlier work, Steve made a convincing analysis discriminating "aid" along key drivers. Following Steve's model, one may want to catalogue foreign aid as an instrument for : foreign policy (e.g., base rights, votes in the UUNN), disaster relief, earmark funds to influential constituencies, imperial projection, global security (e.g., "drug money"), resource security (foreign aid to oil rich Nigeria?), and development aid.

2. Development aid is orders of magnitude less than the $2.3 trillion often quoted by Easterly.

3. Country or grass root ownership, as proposed by Easterly is probably a sound pathway, as long as everyone becomes aware that accountability will become a major issue with those who approve funds to donor agencies.

4. Egos tend to dominate the development "expert" group and the politicians dealing with the "downtrodden." These egos map onto hubris and finger pointing. Rigorous evaluations seldom measure the managment effectiveness of donors, and usually, find blame in the "local" mismanagement or weak capacity. Those who pay for evaluations are seldom questioned (what are the probabilities of a company to be hired if it gains a reputation built on tough evaluations)?

5. Time lines are often fictitious. As one farmer leader once told me "you have the clock but we have the time." The "speed to market" consuming donors drives studies and project design (even when countries or communities "rank" their own priorities and "produce" their own design). Washington moves very fast, but Mozambique slowly. Bureaucrats, a few seeking career advancement and rewards (and there is absolutely nothing wrong with that, how you get it determines effectiveness...but that is a separate point), bur the majority just trying to do a good job, must follow the clock set by their power centers--tough for Mozambique. The different relative times to their respective frames of reference produce inflated expectations often leading to frustration (and second generation projects, no-cost extensions,and accusation of consultants (who are often requested to do the impossible) and most often, blame freely allocated to the "local stakeholders."

6. Easterly mantra--evaluations by independent third parties--sounds logical. But any tracking process must begin with the decisional process and benchmarking leading to the expected projects. The pressure to sign and disburse may be a more damning curse than weak evaluations. Once again, who cares about the evaluation results? What are those results expected to reinforce or change? Who plays the evaluation game for funding or promotions?

7. Politically driven earmarks continue to insinuate their way into the decisional process. Earmark funds should not form part of the development aid bucket; they fit better in the domestic interest one.
8. Refusal by theoretical thinkers to accept the development experience of the few countries that have made it.
a)Korea, Taiwan, Chile, Spain, all had policies with "significant" market distortion effects that allowed a domestic industry to gain some degree of competition.
b)Equally important, medium term macro-economic order must be part of the "allocative" function of development aid. Should countries with lousy macro-economic policies (e.g., massive energy subsidies to upper middle class users) receive development aid?
c) Corruption is pervasive in most of the world. In the U.S., Japan, Korea or Taiwan blatant cases of rampant corruption have been found in important periods of their history (in the U.S. from the end of the Civil War to Terry Roosevelt's presidency, etc.,). But these countries have developed.

9.Need to rethink the corrosive effect of corruption and what are its bounds. Nigeria, Angola and most other oil producing nations in the developing world find their population becoming poorer and institutions weakening, specially in those areas where the oil is produced (e.g., the oil producing towns in Colombia; the educational system in Alaska). Tom Friedman's so called rule, democracy goes down as oil flows out (or words to that effect), may be right. But more damming is that poverty worsens when oil flows.

10. Ignorant bureaucrats and administrators, with little to no experience in development, try to force feed abstract concepts into operational activities. They may cause as much damage as incompetent implementors appointed through nepotism (sometimes of the donors) or faltering progress caused by lack of political will. No one will attempt to claim knowledge of string theory in physics without mastering Newtonian macro-physics. But, alas, in development, everyone seems to be an expert--it is so easy to claim that the past failed, therefore no need to work hard at learning its lessons. HUBRIS!!!

11. Consultants have become the punching bag for everyone. We (I have been a "development bureaucrat" for over 30 years) have created them, the good, the bad, and the ugly. Crass mismanagement by donors has allowed poor performers to thrive and professionals with great integrity and know-how to suffer. This is more a management and governance issue, than an evaluation point. Do not ask evaluations to do what political will and prudent management should address. Why? Because who will demobilize construction crews ($$$$) from failing countries, or send advisors home in the middle of the school year? Will a bureaucrat (or her politically appointed "leader.") absorb the pain when a good evaluation shows bad results? Or would this be "papered."

12. Development aid has worked in many countries. The frustration is that many cases are encapsulated in "enclave" success stories. The business climate, usually established to keep the poor in place,[do major donors become nervous if political candidates emerging from the grass roots begin to compete in the political arena to change the institutional chains keeping the poor "in their place."] very often does not allow the replication of success stories, and suffocates those shining ventures when the donor goes home.

13. The donor timeline kills responsibility at the end of the funding cycle. Unfortunately, development usually takes place after funding ends (occassionally with unexpected results blooming, and expected ones fading). This policy (or pragmatism--no fresh disbursement, no one cares) has undermined a growth process that by its intrinsic nature is time intensive (good bureaucrats have tried to solve this problems by creating Phase 2, Ph 3, Ph 4 so that projects survive for 20 years in the donor's womb, not in real life).

14. The poor must be heard but they may be very wrong. Free credit and input for farmers, a request I have received from the "grass root" around the world (including US and stridently, EU farmers), is wrong. And when it is wrong, it is wrong no mater who owns the wrongness. Risk sharing, however, can be very right. Do not risk the lives of those living at the economic frontier.

15. Market forces that allocate efficiently and inclusively far surpass the capacity of donors. International flows, from FDIs to remittances, dwarf the donor role. So, first, a little bit less hubris would help the development industry significantly. Second, let's focus on what development aid can do: improve the enabling environment so that the isolated majority can join the global prosperity.

16. This inclusiveness may be harder to achieve today than when capital and trade flows moved around the planet at a more sedate pace. Even in countries with the "right" institutions or an egalitarian philosophy the excluded are paying a heavy price. Three-quarters of the way through George Bush's tenure in office, four-fifths of Americans are still significantly worse off than they were back in 2000. Although the top 20 per cent of income earners have seen their incomes, adjusted for inflation, more or less return to the levels seen in 2000, the remaining 80 per cent have not. ( Stephen King, managing director of economics at HSBC) The worsening income polarization in China, not the health of their banking system (miserable as it is), could be the major issue tarnishing the outlook of the global economy.

Congratulations on this debate. To find improved means and ways to help the isolated spring out of their poverty trap will benefit almost everyone. To me lifting the poor is an act of faith. But, ignoring believes, a stark fact remains: they will be tomorrow's market-as consumers or as .... We all need a healthy, peaceful, prosperous planet.

It seems to me that Radelet and Easterly have not helped us to move ahead. People from the recipient countries need to be involved in the discussion.

Radelet cites progress in fighting disease and a world wide increase in life expectancy as evidence of progress. That is probably a good thing if the countries involved have the resources and the knowledge to support the increased population, often they do not and we end up feeding those who can not support themselves.

I'm not sure that we should point to Korea and Pakistan as great example of aid. Most of what we spend there goes for military assistance. It does get translated into higher incomes for some.

Easterly is right that we need to listen and seek, but unless the governments in the countries that are receiving aid can be trusted not to siphon it off for other purposes and are willing to account for how it get used we can't make much progress. If all we can point to is micro finance on the one hand and rehydration on the other we haven't moved very far.

Easterly's aside about emails from Africa and Haiti complaining about the flow of aid can not be used to justify a change in direction. If they would spend their efforts suggesting real needs and solutions perhaps the money would flow their way.

Big pushes to create infrastructure are necessary but we need to carefully evaluate the potential outcome of the infrastructure change. As and example: President Johnson built "Appalachian Access Roads" as part of his War on Poverty. The roads became Exit Roads as the people of Appalachia moved to the city to find work. Appalachia did not really develop.

Easterly asks; "In what other field would old failed ideas reappear as the basis for policy?" The answer is that those fields where the vested interest have the power to control programs for their own interest. Prime examples are: agriculture in the US and Europe, the auto industry in the US, the oil industry in the US, the pharmaceutical industry in the US and Europe, etc, etc.

If we provide medical aid and food aid and do not educate people and work with the people to assist them in finding meaningful employment we exacerbate the situation and perpetuate the need for continuing aid.

It would be good if the two quit trying to win points in a debate, stuck to central issues and brought in people from the mico economy where development must take place. Perhaps then there might be some light shed on the real problems that limits the effectiveness of aid: graft, corruption and abuse of power.