Getting it right on foreign aid

The Center for Global Development's Nancy Birdsall takes on her colleague Arvind Subramanian on foreign aid.  Subramanian had argued in the Wall Street Journal that aid destined for health and other social projects may detract resources and attention from economic growth. Birdsall argues these trade-offs don't really exist.

I feel that the debate on aid is stuck on an unproductive track, revolving around the question of whether it works or not. Yet at closer look, both the advocates and detractors seem to me to be saying something different. So, Jeff Sachs is hardly a fan of the foreign aid system as it currently exists, and he has tons of ideas about how it should be improved in order to become effective (start by cutting back the amount that is returned to rich countries in the form of technical assistance, streamlining the process, and involving the recipients more in the decisions). And Bill Easterly's book on White Man's Burden is full of examples of aid that actually worked (from fighting river blindness to Marshall Plan to the Polish stabilization).

So the real debate is not about whether aid works or not, but about (a) under what circumstances it actually works; (b) how it can be reformed, in principle, to become more effective; and (c) how likely is it that the requisite reforms can in fact be undertaken. The disagreements among Sachs, Easterly, Subramanian, Birdsall et al. are about these questions, but they are often left implicit in the discussion.

We can begin to make progress if we start focusing on these real issues.

Comments

[inthemachine]

Thanks for hilighting the often overlooked question of whether or not certain types of aid reform are feasible. Too often people get caught up in what headline theory or reform would "make aid more efficient," without realizing that if no one is willing to implement a change, it doesn't matter how much better it would theoretically make the system. State governments are not likely to stop giving money to their "strategic partners" any time soon. The US Congress will continue to fund things that sound nice (eg: education but not infrastructure), and the american public will continue to find Angelina Jolie more persuasive than actual development professionals. The real challenge optimizing an aid system that is subject to all of these binding constraints.

[hari]

Under Cotonu Agreement, (successor to Lome Convention'75) the EU Commission has finally succeeded to:-

* explicitly avoid economic aid that's tied;

*established good governance as precondition for grant/aid;

*capacity building as pre-requisite for development;

*bilateral/multilateral consulations at senior officials level to identify development priorities of receipient countries and (political) role of program planning system;

* and, financial budget approval/dispersement based on approved national indicative programs.

It sounds fantastic; and inspite of hickups, it's working and delivering incremental development
programs to ACP states.

[random african]

Whoa. Do you really expect the debate to get anywhere anytime soon ?

I'm actually impressed.

To me it seems obvious that the people you're debating are and will never be willing to analyze when and how it works or when and how it fails as this simple thought would contradict everything their careers and their worldviews are built on.

Honestly, I would wish this blog was more about what works and how.

and Hari, can we have examples of the incrimental devellopment programs you're talking about in the ACP states ?

[Per Kurowski]

What I most missed when as an Executive Director at the World Bank we had to go through the evaluation of a particular World Bank program, was someone telling us whether it belonged among the ten best, the ten worst, or just among the average; and arguing the whys.

Before the World Bank’s management and the donor community dare to produce a yearly “the ten best and the ten worst list” there will be no real evaluations and no one, not even Jeffrey Sachs or Bill Easterly' will know what programs they should be scaling up, which one need corrections and which ones should be closed down.

It is sort of frightening when an organization does not make explicit what is working and what is not. Try yourself to budget and allocate scarce resources in such circumstances!

“So the real debate is not about whether aid works or not, but about” … if we are really interested in knowing it or prefer being kept in the blissful ignorance that is so forgiving and allowing.

[Ali Sohail (pakistan)]

Mr Per Kurowski - I was hoping if you could clarify a few long held myths or may be they are realities, that undermine my mind specifically when we talk about Aid project evaluations and the World Bank.
This I ask especially given your work at the Bank and your insightful blog opinions over the past few months.

Something pointed out by Miers (an accredited employee of the Bank) among others that strike my mind,

Firstly, Only 5-10% of the World Bank Aid projects are evaluated interms of their desired level of achievement and their followup.In addition, Out of the projects that are scrutinized most of evaluation is done by the individuals implementing the project in the first place, hence the large mystified room for discretion and bias.

Secondly, As you mentioned the 'The ten best and worst list' and many other such self promoting lists that are produced by the Bank such as 'The ten things you never knew about the World Bank' (2001) are merely the outcome of rankings being produced on the basis of the amounts of Aid that is disbursed rather than the actual ground results they attain.

And finally, How can one rationalize the financing of Infrastructre that was simultaneous being destroyed by ramping armies in Seirra Leone (1998-2001) where a $45million World Bank Roads and rehabilitation and Maintence Project was disbursed in the middle of a Brutal Civil War.

[Kerim Can]

Political scientists like Randy Stone and Thad Dunning argue that aid works when donors can credibly enforce conditionality and cut aid if it is misused.

[terence]

Very nicely put Dani.

One question, didn't you co-author a Foreign Policy article with these two? one that made some claims about aid? You all seemed in agreement then. Was this simply thanks to your own editing and mediation skills? :)

[Aqdas Afzal (Pakistan)]

I largely agree with Dani's main argument that development scholars should be focusing not on whether aids works or not (it does), but on under what institutions, reforms and mechanics is it most effective.

Recently, the World Bank (WB) has a taken a step in the right direction by devolving the distribution of education aid from the federal to the provincial level here in Pakistan.

Instead of giving the total aid package to the federal government, which could have mis-spent it, the Bank has directly approached the administration of the largest province in Pakistan, i.e. The Punjab.

As a result, the administration in the province of Punjab (60% of total PAK population) has done some significant work on education.

I recently visited a provincial government-run high school in one of the poorer neighborhoods close to my home. I was surprised to see that through the aid being provided by the Bank, the school was providing education free of cost as well as free books and other supplies.

I know this is just one example, but the general consensus here is that there is impressive work being done here to increase literacy.

So, in the preceding example, we can see that if aid is channeled through the appropriate level of government it has the potential of delivering impressive dividends.

Personally, I would like to see further devolution in aid disbursement. For instance, the elected Nazim of Lahore (Mayor) has done excellent administrative work during his tenure.

In future, it might be a good idea to work directly with city governments in the developing nations so that we can cut down the bureacratic middlemen.

[Vukani]

I would argue that Aid works only if the underlying interests of donors are align with that of the recepeints. Further, aid will only work under the stable or in part stable conditions that can allow proper evaluation.

[Per Kurowski]

Re Ali Sohail (Pakistan)

First, let me be absolutely clear that I believe the World Bank to be an extraordinary good institution given the really hellish waters of the international diplomatic bureaucracy it has to swim in. Compared to what it could be? Almost a wonder! That said, of course it needs to be alert day after day and of course there are many ways it could improve.

It spends fortune in internal evaluations, some good and other bad, and many or even most of them clearly suffer from the natural incestuous bias that always happens when like-minded people have to evaluate work of like-minded people. Have you seen PhDs evaluating the value of research?

What I said was that they did NOT have a ten best or ten worst list and by which I implied that their real problem was not so much the evaluations themselves but the difficulties of knowing what to do with the results. There are no real thresholds that automatically forces bad programs out and so therefore these tend to hang around for much to long while good programs find it hard to be scaled up fast enough.

Forcing the management of the World Bank to report to the Board which are, in their own very biased opinion, the best ten and the worst ten programs would have an incredible cleansing effect and help to keep the institution on its toes, for its own and our much good. It is obvious that the management would prefer not finding itself in the bind of having to do that, so they have to be forced and which probably requires a somewhat less accommodating Executive Board.

Management might very well have something like their own internal 10-10 list but if so it will never gain any real significance until it is made public. Also, since the World Bank ranks others, it could also be a healthy and perspective building experience having to rank itself internally.

[os]

One reason why asking the question "does aid work?" is not very helpful is that very few people outside academia actually face this question in their day-to-day work. A typical government official or aid agency employee is instead grappling with whether or not intervention X will work in country Y over time horizon Z. Whether aid is effective *on average* sheds very little light on this. A far more helpful approach to aid effectiveness (though still not perfect) is the sort of work being done by the MIT Poverty Action Lab, which evaluates very specific interventions. Far more evaluations of this type should be done -- including, of course, by aid agencies themselves.

[Per Kurowski]

Re Vukani: “I would argue that Aid works only if…”

And I would argue that Aid only works when it is directed to building up that confidence required for the recipient to take it from there… like teaching someone to bike, and will only be disruptive when it is directed, even with the best of the intentions, to hold the bike for the recipient while he bikes.

[Ali Sohail (pakistan)]

Thank you for your response and for sharing your opinions Mr Per Kurowski!

[Ali Sohail (pakistan)]

If i may add to your comment: 'I believe the World Bank to be an extraordinary good institution given the really hellish waters of the international diplomatic bureaucracy it has to swim in' --
'Very well said', and draws a parallel to what can be, a good starting point for some countries to justify the fallout of their foreign policy.

[Per Kurowski]

Re Ali Sohail: Well of course. The difference between a justified explanation and an unjustified excuse is sometimes very difficult to establish. Kids and politician are masters navigating those murky waters.

[hari]

This discussion reminds me of the blind following the blind!

How many of you academics have really got your hands soiled by working in a developing country?

Bretton Wood Institutions are best if they're closed for ever! They've done more damage to developing countries and perhaps held them back or even retarded their actual or potential development.

There's NO right or wrong way to manage development cooperation.

The EU Commission learnt that under Lome I - IV.

The principle to follow is to deal with the urgent needs of the individual country based on a program of action and to prepare a joint action plan to address their basic needs.

The more efficient and detailed the planning process the more likely you'll succeed in delivering the programme tragets.

What Subramaniam and Co. are discussing is some theoretical stuff - far removed from the real life needs of developing countries.

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