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Development Policy of the Future… And Why We Aren’t Ready
February 22, 2011
This post originally appeared on devpolicy.org and devex and is based loosely on a February 10th talk at the Development Policy Center at Australian National University’s Crawford School and a March 1st speech at The International Development Research Centre in Ottawa..
The maxim that armies are always fighting the last war might just as aptly apply to development agencies: they are too often tackling yesterday’s problems with an outdated set of tools. If our development policies and agencies are to serve our interests, then we need them to both live in the present and prepare for the future. So, what then might development policy look like, say, a decade from now? What should we be thinking about now to get ready? Here are three big trends I think will be shaping the development future:
- Drastically fewer poor countries. The old idea of a binary world of a few rich countries surrounded by lots of poor ones (think G8 vs. G77) is simply no longer true. (If you don’t believe me, watch Hans Rosling.) And it’s not just fast-growing India and China, but lots of countries including many in Africa. In fact, IDA, the World Bank’s soft loan window for poor countries and arguably the most important international development institution, will probably lose at least half of its client countries over the next 10-15 years because they will grow too rich to qualify.
- New players are breaking the traditional aid cartel. The old donor-recipient model dominated by OECD governments is becoming increasingly passé. New donors (China, India, the Gulf, etc.) play by different rules and with different aid models closely linked to commerce. Big private philanthropists now rival mid-size government donors in both size and influence. The Gates Foundation now distributes about $3 billion per year, which would make it the same size as the median OECD donor (or roughly on par with the aid programs of Italy or Australia). Perhaps most decisively, private sources of capital—hedge funds, sovereign wealth funds, and other investment vehicles—are a growing source of accessible capital for poor regions. Private capital flows into Africa hit $55 billion last year, almost double the level of aid flows.
- The likely end of the Gleneagles “doubling aid” era. Recent British and Australian pledges aside, medium-term prospects for major expansions in public sector aid dollars are probably dim. Belt-tightening across Europe and North America will instead likely lead to budget shrinkage and hasten the relevance of private and non-OECD actors in this space.
So, what might all this mean for future development policy?
- Escalating demand for value-for-money. This won’t necessarily mean greater enforcement of selectivity or conditionality in the old sense, but rather I suspect we are still at the early front–end of a wave of new results-based aid innovations. Output-based aid is catching on while outcome-based aid (AKA Cash on Delivery) will be piloted soon. We are also certainly going to see new and wider applications of cash transfers, partly because these are proving to be highly efficient and partly as a reaction to old aid models that aren’t.
- Global public goods rather than country programs. With only a few dozen really poor countries left, and still large pockets of poor people in middle-income countries, the big value in aid will be investing in solutions that have impacts beyond a single country’s borders. This means investing more in new vaccines, agricultural technology, clean energy, regional infrastructure, and other things that cannot be done by designing narrow country programs for Mali or Cambodia. (Of course political aid and bribes to allies for strategic reasons will stay in a country silo.)
- Most importantly, development will shift toward non-aid tools. The debate in the UK right now about its aid program in India is just a sign of things to come. The British public is asking why its scarce aid dollars might go to a country with $300 billion in reserves and a space program. More to the point, India doesn’t want British aid. It wants business, technology, and visas. And this will be increasingly true for places like Indonesia, Nigeria, Mongolia, Vietnam, and Ghana. For the OECD countries, this suggests that development policy will become about fixing the public policies and tools that we have to encourage trade, investment, migration, and other aspects of global interaction that are typically beyond the purview of aid agencies.
Conclusion: We aren’t ready for this new world yet. Unfortunately, western governments haven’t caught up to these emerging trends—and are definitely not set up to deal with these changes. USAID and IDA were established for a very different world more than fifty years ago… and they are showing their age. Most budget systems can’t handle results-based aid models very well, most agencies are stuck in a country-based allocation and strategy mode, and no one yet has a credible or efficient way to fund global public goods. Policy coherence (or even the more modest goal of clear articulation of the tradeoffs) is still more a buzzword than reality. And our private sector tools, like OPIC in the U.S., are woefully underutilized and even under threat.
All of this partly explains why the U.S. is struggling with reorganization and embracing—I believe mistakenly—a flawed whole-of-government model. Creating modern institutions with the capability to respond to this new world and its new demands may sound like moving bureaucratic boxes, but is in fact the next frontier of global development policy. Otherwise, function will continue to follow form, and our development agencies and ideas will continue fighting the last war on poverty rather than the upcoming one.
Possibly Related Posts
- My Reflections on and Hopes for the New U.S. Global Development Policy
- Too Big to Succeed? Why (W)Hole-of-Government Cannot Work for U.S. Development Policy
4 Responses to “Development Policy of the Future… And Why We Aren’t Ready”
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February 22nd, 2011 at 2:00 pm
[...] This post was mentioned on Twitter by IPA, Catharine Kuber, charlesjkenny, Daniel/Sebastian TT , Todd Moss and others. Todd Moss said: My blog on development policy of the future – and why we aren't ready http://bit.ly/emQ95D (originally @devpolicy) #globaldev [...]
February 23rd, 2011 at 11:09 am
One should be careful in differentiating outcome-based aid vs output-based aid for the following reasons: (i) output based aid also addresses intermediate outcomes that relate to increased access to basic services or increased utilization of basic services; (ii) there’s a spectrum of outcomes: from intermediate, to higher order, to MDG-type. As one goes higher in the results chain, the greater the difficulty in establishing attribution to any specific aid intervention. Hence, we would be curious on how outcome-based aid is defined and how the issue of attribution is addressed.
For OBA, the results — intermediate outcomes and outputs –have been directly attributed to the project, as contractually feasible as possible. Aid/financing is disbursed only upon verification that there is indeed increased access or utilization of basic services by the targeted beneficiaries.
Since GPOBA’s first subsidy project was signed in 2006, over one million people have been verified to have gained access to essential services like water, energy, and healthcare as a direct result of OBA pilot projects funded by the GPOBA. Detailed information on GPOBA and World Bank OBA projects is available on wwww.oba-data.org
March 5th, 2011 at 2:07 am
Mr. Moss’s blog makes the excellent and essential points that private international capital flows dwarf donor governments’ aid budgets and that those developing countries, like India, who are showing success are more interested in attracting technology and private capital than in attracting official development assistance.
Mr. Moss also mentions public goods, perhaps however without sufficiently highlighting the role of governments (and thus of ODA). “Public” here means “non-rival in use,” leading to the conclusion that public goods should be financed through fixed-cost “membership” fees rather than marginal-cost usage fees. In this case, governments’ legitimacy in collecting membership fees universally from society (aka taxes) makes government financing a useful supplement to private financing.
Note that technology is essential to public (consumption) goods as well as to productivity-enhancing investment. Charles Kenny demonstrates in “Solow’s Return” (http://www.cgdev.org/content/p.....l/1424863/) that low-income countries’ consumption is about as intensive in technology as is consumption in high-income countries. (Indeed, only high-income countries can afford the inefficiency of antiquated bricks-and-mortar, copper-wire techniques.)
These observations from Mr. Moss’s blog point the way to development assistance policy for the future.
1. On public goods needed in low-income countries, financing technology’s development cost (R&D) should be further socialized to move it away from inefficient reliance on charging for use of technology. (Pricing should be confined to production and distribution costs.) In particular, the patent system, which not only relies on technology-use pricing to finance R&D but also exacerbates this inefficiency by creating government-approved monopolies, should be substantially cut back and reformed. Socializing R&D costs and reducing technology usage fees will benefit everyone but will benefit low-income countries disproportionately, indicating a role for ODA.
2. On assisting productivity growth, development assistance’s role is probably not to deliver existing technology for firms to use. Government agencies are not noted for success in “picking winners” and “transferring” productivity-enhancing technology appears to be harder than transferring technology-based consumption goods.
Charles Kenny in “Solow’s Return” emphasizes the latter point: “There is strong evidence to support Romer’s contention that process technologies are more important to per capita income growth than so-called traditional invented technologies. In particular, traditional invented technologies aren’t sticky; they flow across borders. … On the other hand, there are no Wal-Marts in Malawi. Televisions and computers, along with cars and telephones, work pretty similarly worldwide. Inventory control and production management systems do not. They are highly context-specific. …[I]improvements in process technologies have to take account of the existing institutional context. This suggests a long-term and context-specific path of improvement in process technologies … .”
Using Mr. Kenny’s terms, one only has to ask the question “How will low-income countries develop context-specific process technologies that take account of local institutions?” to know the answer: the countries will develop those technologies themselves.
On the productivity side therefore, development assistance needs to support local innovation processes and institutions. We are not accustomed to these phrases: “innovation processes” and “innovation institutions.” However, countries may identify their innovation resources through bringing industrial, academic, and governmental parties together to create “innovation strategies,” which will define the role of ODA among other things.
Realistically, when we use locutions like “countries will” or “countries can” we need to keep in mind that, while teams are important, things are not done by “countries” but by people. Nothing “will be done” in the passive voice; people will do things in the active voice. Leadership, vision, and technical expertise will be vital to creating innovation strategies as well as to each piece of industrial process innovation.
Fortunately, development assistance has a proven ability to contribute substantially to producing professionals with leadership ability, vision, and technical expertise. In India’s case, the role of outside assistance in the effort that has created India’s institutes of technology and management is well known.
But what have donors done for professional development and for innovation strategies in low-income countries lately? That is where the future of development policy lies.
Fortunately, these programs don’t cost very much, so aid budgets can be vastly “wrong” and still spare enough funding to support professional development and innovation strategies. (Public consumption goods are, in contrast, hugely expensive.)
And donors don’t really need to innovate themselves — they can look at what the Ford Foundation and ICA did starting in the 1950s. But they do need vision.
March 9th, 2011 at 1:13 am
Thinking the future of development aid without a firm grasp of what actually happens on the ground is mostly likely to be driven by imaginary constructions and ideology.
There will still be lots of poor people who could benefit from aid in the next decades. Saying otherwise is to emphasize too much the 30% of glass that is almost full. The poor will live in middle income and low income countries, which will continue existing and struggling despite all wishes on the contrary. The sort of aid they need is not delivered by a cartel, because such a thing does not exist. What drives the aid industry is the unspoken project to construct nation-states according to Western standards, hoping both that these functional states will be easier to keep in the lines of influence and its population will get slowly into the constructed role of citizens and members of some sort of civil society. The build up of the institutional framework for that will not be done by donors like China (which pursues a clear agenda of economic targets) or non-bilateral or non-multi-lateral donors like Gates foundation or the like, which does not provide support to Government institutional buildup. Therefore, in the decades to come there will be vast need of the kind of bi-lateral or multi-lateral funds that is current flowing to recipient countries via project, SWAPs or budget support; a role that direct private investment does not want to play. Institutions are still too weak and fragile, and even not in place yet. The only point I can agree with the post is about the threat of budget shrinkage and the difficulties in convincing the developed home constituencies of what aid is achieving and what can still be achieved. Although, as said earlier, the main objective is to keep the channels of communication and lines of influence open (and through them circulate the messages to establish the basis for private businesses to follow), aid agencies will face difficulties in wrapping up and dressing their discourses in other fashion that the home audience accept and digest more easily. Cash-on-delivery is one of those packages, although a not very convincing one.