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Owen Barder is a Vice President at the Center for Global Development, Director for Europe and a senior fellow. He is also a Visiting Professor in Practice at the London School of Economics and a Specialist Adviser to the UK House of Commons International Development Committee. Barder was a British civil servant from 1988 to 2010, during which time he worked in No.10 Downing Street, as Private Secretary (Economic Affairs) to the Prime Minister; in the UK Treasury, including as Private Secretary to the Chancellor of the Exchequer; and in the Department for International Development, where he was variously Director of International Finance and Global Development Effectiveness, Director of Communications and Information, and head of Africa Policy & Economics Department. As a young Treasury economist, Barder set up the first UK government website, to put details of the 1994 budget online.
The Secretary of State for International Development, Penny Mordaunt, is giving a big speech this Thursday, setting out her strategic directions on development. She has already impressed many people in development by the way she has embraced the mission of the department while challenging some of its ways of working. She has also won plaudits for her deft handling of the important issue of safeguarding in development.
What I’d like to hear this week is how the government’s new “Fusion Doctrine”, launched last week in the National Security Capability Review, applies to the government’s development objectives.
The “Fusion Doctrine” described in the capability review is that all the levers at the government’s disposal, including aid, should be available to secure the government’s economic, security, and influence goals. It is represented in the review in the diagram below.
In a second blog post coming soon, I will be considering the trend to allow other government departments to manage an increasing share of British aid, and the questions this has raised about the quality of aid. In this post, I want to deal with a different, even more important, point: a whole-of-government development strategy should mean more than letting the whole of government spend foreign aid.
Figure 1: The Fusion Doctrine
The Fusion Doctrine should apply to development too
I’m all for joining up all the government’s instruments and levers to achieve the government’s economic, security and influence goals. These are legitimate and important goals for any nation, and if the manner and scope of our development policy can help us achieve them, then this will be good for our country, and will build support and legitimacy for development cooperation. There is nothing wrong with identifying and pursuing “win-win” policies which benefit us directly at the same time as pursing our development goals, though of course we must be vigilant to ensure that the reasonable pursuit of our national interest does not lead us into significantly less effective development policy.
It is not surprising that the National Security Capability Review should focus mainly on how the instruments of government can achieve the government’s security objectives. I don’t have a problem with that. I hope that Penny Mordaunt’s speech on Thursday will build on that, by explaining how the coherent and sensible concept of the Fusion Doctrine applies also to the government’s development objectives.
None of this is yet in the Fusion Doctrine, at least as articulated so far in the national security capability review. That review focuses on the impact of government policies on UK interests, ignoring their wider impact. To give one small example, the sentence on arms control reads:
We will continue our work to choke off the supply and availability of illegal firearms to prevent their use by criminal or terrorist groups in the UK.
There is no mention here of limiting conflict in other countries, including in developing countries, by better controlling the sales of arms from Britain and other countries. As far as the National Security Capability Review is concerned, the Fusion Doctrine will help prevent criminality and conflict in the UK, not the rest of the world. That’s understandable in a statement about national security, and I realise that the government is determined to justify its aid spending robustly by describing clearly how it protects Britain’s national interests. But from reading the capability review, you could be forgiven for thinking that international development is merely an instrument for British national security, and not also one of the government’s objectives in its own right. Of course it is—or should be—both. And what’s more, given that development does contribute to Britain’s national security, then a true fusion would surely ensure that as many levers as possible are being pulled to accelerate it. That is why I eagerly await the Secretary of State’s opportunity next week to fill in the parts of the picture which were missing from a security-oriented review.
We will ensure that an annual whole-of-government plan is in place across government departments, setting out development objectives for the year with measurable indicators, and signed off by the Secretary of State for International Development. Each government department will be accountable for delivering on their objectives.
That sounds a lot like what you would get if you applied the fusion doctrine to development. (To continue with the example of arms sales, the Labour Party policy statement pledges “we will ensure DFID plays a proactive role on the Export Controls Joint Unit, the government body currently responsible for sanctioning UK arms sales.”) Of course, as Mario Cuomo observed, you campaign in poetry but govern in prose. When in government, development goals are often given low priority compared to other, more politically pressing concerns. The last Labour Government also established the principle that DFID should be consulted about arms export licences, but over the thirteen years when Labour was in power, DFID never once successfully contested the issuing of an arms export licence.
So I hope we will soon hear something similar from government ministers, including the Development Secretary. The government should make clear that international development is indeed a goal in its own right and not merely an instrument for our security, economic, and influence objectives, and that the Fusion Doctrine will be applied in the same way to this important goal, just as it means that development policy will be applied to other government goals. Distributing aid budgets around Whitehall is not a good substitute for a joined up and coherent government using all of its instruments strategically in pursuit of all its goals.
In my next blog post, I look at how the Secretary of State might address growing concerns about how the government can ensure that aid spent by other government departments is effective and coherent.
Happy New Year, and welcome to 2018 from all of us at CGD.
Here at CGD, we’re always working on new ideas to stay on top of the rapidly changing global development landscape. Whether it’s examining new technologies with the potential to alleviate poverty, presenting innovative ways to finance global health, assessing changing leadership at international institutions, or working to maximize results in resource-constrained environments, CGD’s experts are at the forefront of practical policy solutions to reduce global poverty and inequality.
Watch our video to hear from our experts directly, and get an in-depth look below at their thoughts on the 2018 global development landscape:
The role of international cooperation
“We’re in a difficult time for development policy. People feel as if we’re in competition with the developing world, and I think we have to get back to recognizing that we have shared problems that we need to solve together. The premise of international development cooperation—now rightly enshrined in the Sustainable Development Goals—is that we are in this together: we all benefit from shared prosperity, openness, trade, security, values, rights, and justice. We are in danger of seeing the world as zero sum—in which improvements in some parts of the world are wrongly believed to be at the expense of success elsewhere. If we allow this idea to take root, it will undermine support for development cooperation, and take us in directions that erode global cooperation and the institutions that protect and sustain our shared security and prosperity.”
The effect of transitioning away from aid: asking the right questions
“I think 2018 is going to have to be about countries transitioning away from aid, and as a result it’s going to have to be about how we invest limited resources to get the best return for that investment. What happens to social spending commitments towards global health priority areas such as vaccinations and infectious diseases, as Ministries of Finance are increasingly asked to allocate their own domestic resources to replace diminishing donor funds? How do national health insurance funds procure pharmaceutical products and other health commodities as LMICs leave purchasing clubs such as Gavi and GFATM whilst having to deal with the growing burden of chronic diseases such as diabetes and cancer? How can technological and organisational innovation address the gap left by departing global purchasing arrangements?
What are the role and responsibilities of norm setting agencies such as the WHO in shaping resource allocation at national level as countries commit to and implement universal coverage for their populations? When are aspirational targets as the ones set through standard treatment guidelines, disease specific norms or the Essential Medicines List, justified and when do they distort local spending priorities and aggravate inequalities?”
New leadership, limited funding: an opportunity for global health aid
“In 2018, I’m looking forward to seeing economists more deeply embedded in all things global health. First, Peter Sands takes the helm as new executive director at the Global Fund to Fight AIDS, Tuberculosis and Malaria where the focus needs to be value for money—more impact, more rigorously measured, for the same or less money. It’s not just the right thing to do, it’s also a requirement for a portion of future DFID funding. To get this done, better economics should be deployed to inform resource allocation within programs, implement rigorous performance verification and evaluation approaches, and select most cost-effective diagnostics, drugs, and devices for purchase.
Second, at the World Health Organization (WHO), newly elected Dr. Tedros is finalizing his General Program of Work, a 2019-2023 plan that governs the rest of his tenure as Director-General. Faced with many demands and conflicting priorities from its member countries, WHO leadership could benefit from a chief economist (more on this here and here). The goal? To help prioritize demands amid scarce funding, to promote value for money in all policies, and to make the critical link with ministries of finance.
Third, with US tax reform passed, global health aid—like the rest of discretionary spending in the US budget—may face cuts, despite bipartisan support. In the UK, there’s also an uncertain outlook. It’s a clear case of ‘hope for the best, plan for the worst.’ And that’s where the dismal science can contribute: planning for these uncertainties and contingencies, and maybe finding some opportunities for efficiencies along the way. Look to recent work on aid transitions, priority-setting, domestic resource mobilization, innovative financing, value for money, fiscal policies for health, financing global public goods, and our forthcoming work on rationalizing future global health procurement should provide some fodder for policymakers to consider.”
“In 2018, I’m very much looking forward to continuing to explore China’s emergence as a leading development actor. Increasingly, this will mean defining a leading role on international policy commensurate with China's role as a leading development financier globally. In settings like Davos and institutions like the World Bank and the IMF, Chinese officials will inevitably be more prominent in 2018 and will just as inevitably come under increasing pressure to align Chinese policy on issues like sustainable lending with international norms. All of this will likely occur against a backdrop of US retrenchment in these multilateral fora.”
“I’m really excited about the relationship between technology and development, and to begin to examine how we can master the challenges that come with integrating a set of powerful new technologies and ensuring that they deliver the best options for poor people everywhere. Technological innovation has been a driving force of development and this continues to be the case. The current revolution in digital technology, big data, robotics, and artificial intelligence holds enormous promise to deliver development services more effectively and efficiently. However, these forces will need to be harnessed to ensure that the benefits flow to all segments of society in the developing world and the ‘losers’ from this transition are supported in ways that are economically, socially, and politically sustainable. This is a fertile and urgent area for conceptual and empirical research to underpin better policymaking by developing country leaders and the international community.”
“In 2018, I’m excited about expanding our research on the policies that will most effectively help refugees and migrants integrate into their host communities. At a challenging time for migrants and refugees, we are focused on analyzing and generating solutions that can simultaneously advance outcomes for refugees, migrants, and host communities. One of our main projects will highlight policies and programs that benefit sending and receiving communities, as well as emerging innovations such as the Global Skill Partnership. Building on our work on refugee compacts, we'll expand our work on how to achieve impact with new financing mechanisms that support developing countries, which host 86 percent of the world's refugees, to deliver services to refugees and citizens. A key part of this will be research on how to increase refugees' access to labor markets and more deeply engage the private sector, so refugees can become self-reliant by finding jobs and starting businesses—and spurring local markets in the process.
Latin America’s elections: choosing the right leadership to restore peace and prosperity
“In 2018, we will witness a huge cycle of presidential elections in Latin America. My big hope for the year is that the citizenship chooses the right leadership to be able to face the upcoming challenges. The recent elections in Chile (December) and Honduras (November) will be followed by six Presidential elections in 2018: Colombia, Mexico, Brazil, Costa Rica, Paraguay and, potentially, Venezuela. This highly charged electoral cycle comes at a time when populations’ discontent with the results of democracy is on the rise as reported by the reputable poll Latinobarometro. This change in attitude follows the significant deterioration in Latin America’s economic and institutional quality indicators in recent years, reflecting both the end of the period of super high prices of commodities exported by the region and the outburst of corruption and crime in many countries. In this environment, the risk of electing populist (notably in Mexico) or authoritarian leaders (notably in Brazil) is high. Populism and authoritarianism are not strange to Latin American history and their disastrous results on economic and social prosperity are extensively documented (with Venezuela’s recent experience being the latest example). The incoming elections will test whether Latin Americans can avoid repeating the painful mistakes of the past and will choose governments able and willing to put in place the needed reforms to restore economic growth and sustainably enforce the rule of law.”
“In 2018, what I would like to see is the gender gap in financial services reduced. The gender gap in financial services is stuck at a 7 percent gap globally and a 9 percent gap in developing economies. According to the latest data, while the number of bank account holders has increased globally between 2011 and 2014, the gender gap has not shrunk. In 2018 we can do better. So far, a lot more attention has been paid to particular constraints women face in accessing financial services, than to what women actually want from financial products. Focusing on women potential clients as a distinct market segment is a first step. Second, in addition to “know your customer requirements,” the industry should have “know your bank standards” as well, and examine potential gender biases, explicit and implicit, in the delivery of financial services. Banks should examine and correct internal gender biases. Encouraging signs include the commitment of development agencies (including an 8-agency gender data partnership coordinated by Data2X and GBA) and some banks to invest in data, both supply and demand-side, and in testing innovative financial products and delivery systems to increase women’s access to financial services (including experimental evaluation work we at CGD and partners are completing this year). These and other partnerships should help shrink the gap in the short term, especially if large private sector banks globally also act.”
On International Migrants Day, we should remember that refugees are not a burden to be shared. Here we suggest innovative finance mechanisms to pay for that investment without putting pressure on public finances, instead enabling refugees to develop and apply their skills, integrate effectively, and improve their overall contribution. Seeing refugees as an investment, and not as a burden, unlocks huge potential benefits for the countries that host them as well as for the refugees themselves.
Recent conflicts in the Middle East and Africa have led to unprecedented levels of displacement: UNHCR estimates that about 65 million people have had to flee their homes for fear of their lives. Of these, 22 million have crossed borders, seeking safety and asylum in neighbouring countries or embarking upon a perilous journey to Europe where they hope a better life awaits. As the effects of this “refugee crisis” have reverberated around the West, discussions have turned to how to help the most vulnerable, and how countries can balance their humanitarian obligations against political pressures and far-right hostility.
Underlying these discussions is an assumption that refugees are a cost to society. Refugees are often regarded as a “burden” which European countries are urged to share by accepting their “quota,” and aidstates in Europe are accused of waving through asylum-seekers so that they become someone else’s problem. This idea is pushed further by institutions hostile to refugees, who point to strained public services, and focus on costs of processing and housing refugees as they arrive. Hence the rapid rise in the number of refugees being described as a “crisis.”
These upfront costs do exist. Refugees often arrive destitute, sometimes in need of counselling and with little knowledge of the local language or culture. It may take some time before they are able to become net contributors. But taking a longer view, there is no reason to view refugees as a cost: they can be a benefit to their host countries, not a burden. Spending money on refugees is an investment, not a cost.
Many refugees are well-educated—for example, it is estimated that nearly half of all Syrian refugees to enter Europe have a university degree. Many arrive with professional qualifications, potentially saving their new country the cost of training people from scratch to become nurses, engineers or other professionals. In the UK, training a doctor from scratch costs roughly £250,000, whereas certifying a refugee doctor is estimated to cost only £25,000—a tenth of the cost. Unlocking these skills will benefit society both directly and through their tax contributions. And in general, refugees are young. According to available UN data, only 4 percent of refugees in asylum countries are over 60 years old, an estimate which is also borne out by US and Canadian data.
The relative youth of the refugee population is a huge advantage to the advanced economies: an increase in the number of workers spreads the cost of caring for the elderly, alleviating the burden on the public finances caused by an aging population. This is a particular problem in the West, where low fertility and longer life expectancy are driving up the ratio of those above retirement age to those under it. Accepting refugees may not significantly change this trend, but the change would be in the right direction, and give governments more leeway in adapting policies to address an older population.
The long-term potential of refugees is compelling. But whereas these benefits take time to be realised, and as refugees find employment and learn how to navigate an unfamiliar environment, the costs can be immediate. Finding accommodation and providing integration services is costly, and while evidence suggests refugees will pay more into treasuries than they would take over the long term, benefit usage can be high on first arrival. These costs loom large for communities and governments, even if refugees produce more than enough value to cover them in the long term. In order to unlock these gains, a way to address this temporal mismatch is needed.
Finance is a time machine: shifting value across time periods is one of the key roles of finance. So long as the long-run benefits of resettling a refugee outweigh any short-run costs then with the right structure, private investment can be attracted to cover the short-term costs. The increase in national tax revenue can be harnessed to address the increase in services used locally. And a well-designed instrument can give investors the incentive to find out what works best for resettlement, by linking returns to outcomes.
The potential for a financial instrument to improve social outcomes while generating a return for investors has been demonstrated by the recent success of the Peterborough Prison Social Impact Bond. By linking the return on investment to the rate at which ex-prisoners reoffend, the pilot scheme reduced recidivism rates by 9 percent, enough to beat the target of 7.5 percent, thereby triggering a healthy payment to investors. Actors in the scheme had the incentive to find out what worked, and put pressure on service providers to adopt those lessons.
We believe that a similar instrument is needed for refugee resettlement—one that links the speed and success of integration, and extra value generated, with the return that investors obtain. This would provide an incentive to find out how to enable refugees to integrate quickly and move from needing support to making a contribution to their new country. What accreditation is needed for the refugee to use their skills? How much should be spent on language lessons, and who should provide them? Answering the myriad questions associated with integration can improve the lives of refugees and generate wealth for investors and society, as well as—most importantly—for the refugees themselves. But while we continue to think of refugees as a burden to be shared, there will be too few people even asking these questions.
Future tax revenue is not the only source of value that could be harnessed to overcome the initial costs. The international community spends vast resources year after year, maintaining refugees as displaced people, often (though decreasingly) in camps where they suffer loss of dignity and autonomy, and must live off handouts of food packages. Until recently, the average time that a refugee was displaced was estimated to be as much as 15 years. That average has dropped in the last few years: not for the good reason that we are finding ways to end displacement, but for the bad reason that the average has been lowered by an influx of new refugees from Syria. The average for refugees who have been displaced for at least 5 years is 21 years. None of us knows how long current refugees will be displaced, but there is no reason to assume it will be significantly less than the previous 15 year average. The resources used to sustain some refugees in such situations over such long periods of time could be better spent on investments to enable them to resettle. If the international community is willing to spend a certain amount of money on supporting refugees, why not support investment in refugees that costs the same but achieves a better outcome for everyone?
By treating refugees as an investment rather than a cost, innovative finance instruments can begin a virtuous circle. Refugees will be able to contribute more to their new communities, and those communities will increasingly recognise the value to them of refugees, broadening the political space for more resettlement. It is neither possible nor necessary to resettle all the 22.5 million people displaced across borders, and other measures will certainly be needed alongside resettlement programmes. But for some refugees, innovative finance to support investment in resettlement has the potential to increase autonomy, dignity, and economic benefits, leading to better results for everyone.
What will you remember about 2017? The growing crisis of displacement? The US pulling out of the Paris agreement and reinstating the global gag rule on family planning? Or that other countries reaffirmed their commitment to the Paris agreement, that Canada launched a feminist international assistance policy, that Saudi Arabia finally let women drive?
CGD experts have offered analysis and ideas all year, but now it's time to look forward.
What's going to happen in the world of development in 2018? Will we finally understand how to deal equitably with refugees and migrants? Or how technological progress can work for developing countries? Or what the impact of year two of the Trump Administration will be?
Today’s podcast, our final episode of 2017, raises these questions and many more as a multitude of CGD scholars share their insights and hopes for the year ahead. You can preview their responses in the video below.
Thanks for listening. Join us again next year for more episodes of the CGD Podcast.
Britain just announced a new policy for trading with developing countries after Brexit. It maintains the current framework of duty free, quota free access to British markets for least developed countries. It is a good basis for the further steps we’d like to see Britain take.
There’s a tedious old fallacy that developing countries need “trade not aid.” The fallacy is that these are alternatives, when in fact we can, and should, do both, as we at CGD have argued for the last 15 years. No country has ever developed without trade. We should provide opportunities for developing countries to trade with us and provide aid which can help them to use those opportunities. Aid also helps many of the world’s poorest people over and above the benefits their country might get from exporting more to us.
Enabling poor countries to trade is an excellent way to help the poorest countries to attract investment, create jobs and provide incomes for their people. Trade preferences mean far more to investors than aid subsidies. And they are good for British consumers too—market access is one of those win-win policies which helps developing countries and helps us too by keeping prices down and so enabling hard-pressed consumers make their money go further.
That’s why we welcome Britain’s announcement on Saturday that Britain will give duty free quota free access to least developed countries after Brexit—which continues the arrangements now in place under EU rules. This is an indefinite commitment which applies to everything other than arms.
The British Government also intends to maintain existing preferences for other developing countries (not just the least developed countries) but as they rightly say under international trade rules this has to be part of a reciprocal agreement so they can’t announce this unilaterally. These countries, like Kenya and Ghana, are still desperately poor (with national income per head around $1,500 a year) but they are the ones that are most likely to be able to take advantage of trading opportunities in the near future. Maintaining market access for these countries is critical to helping these countries and regions grow and create more jobs and income—making transition arrangements for these existing EU agreements should be a major priority for the Government in the next twelve months.
But we can do even better for the world’s poorest and help our own people too. Here are some ways we would like to see the British government build on this welcome first step.
Simplify red tape.
The EU rules aimed at preventing abuse of the scheme—the so called “rules of origin” to demonstrate produce originated in the exporting country—still make it hard for developing country exporters to take advantage of the market access we claim to be offering. Canada does this better and outside the EU, Britain can learn from the Canadians, and consider developing countries own proposals for these rules. Britain can also help smaller consignments of imports by increasing the very low EU minimum threshold (of 22 euros) for paying VAT—a figure so low, it is unlikely to justify the bureaucracy of collecting it.
Extending trade preferences to other developing countries.
Britain has announced a firm commitment that least developed countries will maintain their current preferences (which Britain can implement unilaterally) as well as the intention to maintain existing arrangements for other developing countries (which requires agreements that legally must wait until after Brexit). As well as all these welcome commitments to maintain existing access, the UK after Brexit can, and should, go further by offering duty free, quota free access to all low income and lower-middle income countries. This would address the substantial risk to developing countries that the EU’s existing deals, which cover 52 countries, are not replicated quickly by Britain. This would be good for the world’s poorest countries and good for British consumers too.
Improve trade facilitation.
There are a host of other mutually beneficial ways to make it frictionless for poor countries to sell to British consumers. For example, we could make it easier to obtain necessary certifications (e.g., organic, food safety, etc.) without undue cost and delay. We can improve access to trade credit (including ensuring that capital adequacy rules do not choke it off). We can facilitate links into retail supply chains. We can make business visas easier, which are vital to lubricate trade. An important first step would be much more extensive consulting with developing country governments and business representatives to find out where the most salient obstacles currently lie.
Stop undermining developing country exporters with unfair competition.
Developing countries face competition from subsidised British farmers—in UK markets, in their own countries, and in third countries where we compete. It doesn’t make sense for us to be subsidising our farmers to compete with exports from developing countries to which we are also providing much-needed aid. Efforts have been made to reduce the trade distortions caused by agricultural subsidies, but there is further to go—and doing so is another example of a policy that is good for Britain and good for development.
So, as a first step, let’s toast the welcome announcement made by the UK government, but let’s not forget there are many more steps to take to enable the poorest countries to trade their way out of poverty.
The UK election has shown again that electorates can throw up unexpected results, with long-standing poll leads evaporating in a matter of weeks. The British public seem uninspired by any single leader but there was little sign of descending into nationalism and populism. The only party that stood on a platform of dismantling the aid budget—UKIP—suffered a heavy defeat. Here we propose two ambitions for the government which emerges.
Election 2017 and manifesto commitments
Theresa May’s Conservative Party won the most seats in the UK’s general election but they won insufficient seats to control a majority in Westminster. For now, the Conservatives will attempt to work with the ten MPs from the Democratic Union Party (DUP), to establish a wafer-thin majority (of some 328 seats, out of 650). The House of Lords may or may not feel bound by the Salisbury Convention of not opposing manifesto commitments after their first reading. Either way, another election can’t be ruled out.
The DUP don’t reference international development in their manifesto - so it will be hard for them to exert much authority on the Conservative commitments in coalition talks. They do argue for more cooperation with the Commonwealth. The DUP are less socially liberal—and less likely to support say women's’ rights, abortion or sexual and reproductive health. The Conservative manifesto includes a long-list of admirable commitments to international leadership. Whatever government emerges, we propose two ambitions.
A positive vision for aid and development
The new government should set a positive vision of aid and why development is worthwhile. So far, Prime Minister May’s approach to development has been largely defensive—protecting the UK’s commitment to spend 0.7 percent of national income on aid, absorbing press criticism of waste and standing up for the importance of cash transfers as reaching those that need it most.
Over 630 of 650 MPs stood on a manifesto which explicitly commits to 0.7 percent of national income on aid. There is an opportunity now for the government to step away from piecemeal, parochial and defensive posture from last autumn, and to set out a positive development vision, describing what the UK will do, building on British values for a fairer, more prosperous world.
Brits believe in aid if the government can ensure it's well-spent and they surely share the Conservative manifesto’s intolerance of social division, injustice, unfairness and inequality beyond the UK too. A modern vision of effective British aid should address both.
A holistic view of development
The new government should broaden its approach to development. At home, Conservatives believe that it is better that people have opportunities for decent work rather than depending on hand-outs, which should be reserved for the most vulnerable people.
The new government should not lose the values that underpin both the Conservative and DUP manifestos—free trade, rule of law, security, the importance of work and enterprise, people living up to their responsibilities, tackling corruption, all supported by an enabling government—instead, it should apply them in its approach to international development.
A positive, broad-based vision of development
The strength of support for UK development in the manifestos of elected politicians shows that Britain will continue to take its leadership role in the world seriously.
A positive and holistic vision will enable development to take its place alongside defence and diplomacy as key planks of Britain’s outward-looking, self-confident, open and engaged contribution. The result will be a better world for all of us.
This is the first of three blog posts looking at the implications of complexity theory for development. These posts draw on a new online lecture by Owen Barder, based on his Kapuscinski Lecture in May 2012 which was sponsored by UNDP and the EU. In this post, Barder explains how complexity science, which is belatedly getting more attention from mainstream economists, gives a new perspective to the meaning of ‘development’.
The Nobel prize–winning economist Amartya Sen has twice changed our thinking about what we mean by development. Traditional welfare economics had focused on incomes as the main measure of well-being until his ground-breaking work in the 1980's which showed that that poverty involved a wider range of deprivations in health, education and living standards which were not captured by income alone. His ‘capabilities approach’ led to introduction of the UN Human Development Index, and subsequently the Multidimensional Poverty Index, both of which aim to measure development in this broader sense. Then in 1999 Sen moved the goalposts again with his argument that freedoms constitute not only the means but the ends in development. Sen's view is now widely accepted: development must be judged by its impact on people, not only by changes in their income but more generally in terms of their choices, capabilities and freedoms; and we should be concerned about the distribution of these improvements, not just the simple average for a society.
But to define development as an improvement in people's well-being does not do justice to what the term means to most of us. Development also carries a connotation of lasting change. Providing a person with a bednet or a water pump can often be an excellent, cost-effective way to improve her well-being, but if the improvement goes away when we stop providing the bednet or pump, we would not normally describe that as development. This suggests that development consists of more than improvements in the well-being of citizens, even broadly defined: it also conveys something about the capacity of economic, political and social systems to provide the circumstances for that well-being on a sustainable, long-term basis.
Accounting for complexity
Mainstream economics has had a difficult time explaining how economic and social systems evolve to create this capacity; and, in particular, our economic models have struggled to explain why some countries have experienced rapid economic growth while others have not. In part this is because economists have generally stuck to models which can easily be solved mathematically. In the meantime, there has been a growing movement in physics, biology and some other social sciences, often called complexity science. Some economists – notably Eric Beinhocker and Tim Harford – have started to make a compelling case for bringing these ideas more centrally into our analysis of economic and social systems; and a new volume of essays from IPPR later this month will call for complexity to be taken more seriously by policymakers. But with the honourable exception of Ben Ramalingam, who has a book coming out in 2013 and has published on this topic for ODI, there has so far been very little work specifically on how complexity theory might be useful in development economics and policy. My Kapu?ci?ski Lecture earlier this year was an effort to explore the implications of complexity thinking for development economics and development policy. I've made this talk available as a narrated online presentation which lasts about 45 minutes. You can watch and listen online; listen to the audio only - for example in the gym - by downloading it from Development Drums or via iTunes; or you can download the transcript and slides.
Complex does not mean complicated
It is not news to anybody working in development that the problems are complicated in the sense that making progress involves tackling lots of different problems. But saying that the economy is a complex adaptive system implies something rather specific about its dynamic properties. We are using ‘complex adaptive system’ here as a term of art to describe a particular kind of non-linear system which turns up everywhere in nature – from waterfalls to ant colonies. The presentation begins with the charming story of a British design student, Thomas Thwaites, who tried to build a toaster from scratch. It turns out that this is very difficult to do: to build something even as simple as a toaster requires a lot else to be already in place in your economy and society. An economy consists of a series of people, firms, products and institutions which interact with each other, each adapting to their changing circumstances as they do so. In the presentation I explain how this network of adaptive agents interact with each other to create a complex adaptive system of the kind studied in biology and physics. The mainstream economics profession has been slow to take up these ideas, but fortunately scientists have been studying complex adaptive systems for at least thirty years and they have made considerable progress in describing their properties. Despite the huge diversity of these systems in nature, they have some important characteristics in common, by virtue of their underlying mathematics. There are good theoretical and empirical reasons for thinking that economic and social systems might share these characteristics, and the real-world trajectories of economic and social systems appear to fit the properties of complex adaptive systems better than they fit the simple, linear models of mainstream economics.
Development as an emergent property of an economic, social and political system
One of the key lessons from complexity theory is that complex adaptive systems can have system-wide properties which do not correspond to the properties of individual components. (This is only possible in non-linear systems, since linear systems are by definition a weighted sum of their parts.) For example, we think of consciousness as a characteristic of a human brain; but it makes no sense to say that a particular brain cell or synapse is conscious. A thunderstorm is a characteristic of the weather, but we cannot say that a particular molecule in the air is, or is not, stormy. These phenomena – which are called ‘emergent properties’ – are not the sum of characteristics of individual parts of the system: they are consequences of the way that the different parts of the system interact with each other. In the talk, I argue that development is an emergent property of the economic and social system, in much the same way that consciousness is an emergent property of the brain. This seems obvious, and yet it is a surprising departure from the way most economists have normally described development as the sum of economic output of all the firms in the economy, or the sum of human well-being of the citizens of a nation. Development is not the sum of well-being of people in the economy and we cannot bring it about simply by making enough people in the economy better off. Development is instead a system-wide manifestation of the way that people, firms, technologies and institutions interact with each other within the economic, social and political system. Specifically, development is the capacity of those systems to provide self-organising complexity. Self-organising complexity in an adaptive system is never designed or deliberately built: it comes about from a process of adaptation and evolution. It follows that if we want to accelerate and shape development, we should focus especially on how the environment can be made most conducive for self-organising complexity to evolve.
This view of development as an emergent property of a system fits with the common-sense definition of development described earlier. Development is more than improvements in people’s well-being: it also describes the capacity of the system to provide the circumstances for that continued well-being. Development is a characteristic of the system; sustained improvements in individual well-being are a yardstick by which it is judged. This has important implications for development policy, both for developing countries themselves wishing to put their economy and society onto a path of faster development, and for outsiders who want to help that process. We are at an early stage of exploring those implications. In my next blog post I will look at one particular implication of the application of complexity theory to development: it has both positive and negative implications for the UK Government’s emphasis on a ‘golden thread’ of institutions which they claim runs through all successful economies.
The immediate aftermath of a natural disaster, such as the typhoon that devastated part of the Phillipines on Friday, can bring out the best of the global community. There will come a time to discuss how we can do more to prevent the environmental changes which make such events more likely, but the immediate priority is to get water, food, and shelter to people who urgently need it. The early signs are that governments and the public will again give generously to appeals for aid, reaffirming our sense of shared humanity. The challenge is to ensure that this generosity reaches the people who desperately need it. Regrettably, this is not the first natural disaster in modern times, nor will it be the last, and there is much that we can learn from the way that humanitarian and reconstruction efforts were organized in the days, weeks, and months following previous mega disasters such as the 2004 tsunami in the Indian Ocean and the 2010 earthquake in Haiti.
We should not help the Philippines like we helped Haiti—we can, and must, help better. Lack of generosity is not the problem. Since the Haitian earthquake, almost $6 billion has been disbursed in official aid, in a country with a population of just under 10 million. On top of that, an estimated $3 billion has been donated to NGOs in private contributions. The United States pledged over $3 billion for relief and reconstruction. Yet almost four years after the quake, there is little to show for this: even the capital, Port-au-Prince, still does not have decent roads, running water, or reliable electricity. An estimated 200,000 to 400,000 Haitians still live in the tents provided by relief agencies soon after the quake.
Nongovernmental organizations and private contractors have been the intermediate recipients of most of these funds. Many are based in the United States or in Europe. But despite the fact that these organizations are beneficiaries of public funds, there are few publicly available evaluations of services delivered, lives saved, or mistakes made. Most Haitians are disillusioned with the overall lack of progress, and with the lack of transparency and accountability that has accompanied the relief effort.
Vijaya’s efforts to discover how the money was spent (see Haiti: Where Has All the Money Gone) found it impossible to trace. For example, USAID disbursed $150 million to Chemonics, an international development company, but as recently as last May there was no public record of how that money was spent, what projects were implemented, or how many people were served. This lack of accountability and transparency means that few lessons can be learned. It also means that is almost impossible for the Haitian authorities to manage aid flows. Pierre Erold Etienne, Director-General of the Haitian Ministry of Finance noted that
We have only very little, overall information on aid.… We are required to be transparent. We publish the financial information relevant to the execution of our budget. All we ask is for the same transparency from our donor friends, which should help both us and them.
The scramble in the aftermath of the earthquake in Haiti was reminiscent of the problems experienced five years earlier in Indonesia following the tsunami, where a series of well-meaning but disjointed efforts led to bottlenecks in the distribution of desperately needed supplies. In Banda Aceh, there were reports of children developing the symptoms of measles after being vaccinated three times by three separate aid organizations.
The world can and must do better than this in the Philippines, and there is reason to be hopeful. There has been impressive progress in using information technology to improve disaster response, especially the vibrant crisis-mapping community. These advances will surely assist the effort in the Philippines in the coming weeks. But activists mappers alone cannot fix all the problems in the humanitarian system. The next step—one that should begin with the crisis in the Philippines—is for all humanitarian organizations and aid agencies to publish details of their planned and actual spending and activities, in real time, in an open, machine-readable format. This simple step would enable outside donors and intended beneficiaries to identify where activities overlap and where the gaps remain, and it would enable everyone to see where the money is going.
For starters, USAID, which is likely to be a major provider of aid to the Philippines, can do a much better job tracking expenditures. USAID is already required by law to report on the activities of its primary contractors. But the actual work is often done by subcontractors. They in turn are required to report project-level data to primary contractors, but that information is not publicly available. This should be easy to fix: USAID should announce that, starting with the Philippine relief and reconstruction effort, it will require all USAID contractors to disclose project-level data in a machine readable format in a timely fashion. This will not only help avoid overlaps and gaps in coverage in the short term but also make it possible to learn lessons about what worked for application in future disasters.
There are three international frameworks for sharing information about humanitarian response: the Financial Tracking System (FTS) of the UN’s Office for Coordination of Humanitarian Affairs (OCHA), the International Aid Transparency Initiative (IATI), and the European Disaster Response Information System (EDRIS). These standards are partly interoperable, and there are welcome efforts to ensure that they work closely together. The efforts to integrate these systems should be accelerated and given serious political backing; in the meantime all governments and humanitarian organizations should report all their activities, in detail and in real time, at least to the FTS, to enable humanitarian aid to have the biggest possible benefit.
The appalling events caused by Typhoon Haiyan could provide an impetus to the growing movement for a more transparent, effective, and better organized system for humanitarian relief and reconstruction. In the meantime, our thoughts are with the victims of these terrible events, and with the many brave humanitarian workers who will be working round the clock in the coming days and weeks to help them.
Translated by Jessica Anne D. Hermosa for CGDev, 15 November 2013
Tuwing tumatama ang isang malaking kalamidad, tulad ng bagyong puminsala sa mga lugar sa Pilipinas noong Nob. 8, madalas umusbong ang kabutihan ng mga tao mula sa lahat ng sulok ng daigdig. Magkakaroon din ng panahon upang pag-usapan ang mga hakbang upang maiwasan ang mga pagbabagong pangkalikasan na
nakapagdudulot ng mga kalamidad, ngunit ang tanging prioridad sa ngayon ay ang paghatid agad-agad ng tubig, pagkain, at masisilungan sa mga taong lubha ang
pangangailan. Ganito kaaga pa lamang ay nakikinita na na muling magiging mapagbigay ang publiko at ang iba't ibang mga gobyerno bilang patunay ng
kapatiran. Ang mahalaga ngayon ay ang paninigurado na makakarating ang tulong na ito. Sa kasamaang palad, hindi ito ang kauna-unahang kalamidad sa ating
panahon ngayon at ni hindi ito ang magiging panghuli. At dahil diyan, napakaraming leksyon na ang maaring mapulot mula sa nakaraan tulad ng sa tsunami sa
Indian Ocean noong 2004 at sa lindol sa Haiti noong 2010.
Huwag nating tulungan ang Pilipinas tulad ng ating ginawa sa Haiti--imbes na dito, dapat ay mas mainam pa ang ating paaran ng pagtulong. Walang kakulangan
ng donasyon, hindi ito ang problema. Sa Haiti, isang bayang may maliit na populasyon na 10 million, mahigit kumulang na $6 bilyon na ang ibinahagi bilang
opisyal na donasyon ng mga bansa magmula nang lumindol doon. Maliban pa rito ay ang $3 bilyon na pribadong donasyong tinanggap ng mga NGO. Ang Estados
Unidos naman ay nagpangako ng mahigit sa $3 bilyon para sa relief at reconstruction doon. Subalit, ngayong halos mag-aapat na taon na pagkatapos ng lindol
ay hindi pa rin kapansin-pansin ang epekto ng mga malalaking halagang ipinamigay para sa Haiti. Sa kanilang kabisera na Port-Au-Prince ay ni wala pa ring
maayos na daan, umaagos na tubig, o maasahang kuryente hanggang ngayon. Mga 200,000 hanggang 400,000 na Haitians ay nakatira pa rin sa mga trapal na
barong-barong na ipinimigay pa ng mga ahensya noong katatama pa lamang ng lindol.
Mga NGO at pribadong kumpanya ang mga tumanggap ng tulong na pinansyal at marami sa kanila ay naka-base sa Estados Unidos at Europa. Ngunit kakaunti lamang
ang mga pampublikong dokumentasyon na nagkikilatis ng kanilang mga naihatid na serbisyo, nasagip na buhay, o kamaliang nagawa kahit na mula sa pampublikong
pondo naman ang kanilang mga natanggap. Maraming Haitians ngayon ay namumuot na sa kawalan ng pag-unlad, impormasyon, at panunungkulan na inaasahan mula sa
mga relief efforts.
Sinubukan ni Vijaya Ramachandran alamin kung papano ba ginasta ang mga donasyon (basahin dito: Haiti: Where Has All the Money Gone) ngunit naging imposible itong
gawin. Halimbawa na lamang ang $150 milyong inabot ng USAID sa Chemonics, isang internasyonal na kumpanyang nakatuon sa mga proyektong kaunlaran: wala pa
ring pampublikong impormasyon noong May 2013 kung paano iwinaldas ang donasyon, anu-anong proyekto ang pinondohan, at ilang mga tao ang natulungan. Dahil
sa kawalan ng impormasyan at pagsagot sa tungkulin, mahirap ngayon pumulot ng halimbawa para sa mga susunod sanang mga proyekto. At dahil dito, sadyang
imposible na rin para sa mga opisyal sa Haiti na pamunuan ang pagdating ng mga pondo. Ayon kay Erold Etienne, Director-General ng Ministry of Finance ng
We have only very little, overall information on aid.… We are required to be transparent. We publish the financial information relevant to the execution
of our budget. All we ask is for the same transparency from our donor friends, which should help both us and them."
(Napaka kaunti lamang ng aming hinahawakang impormasyon ukol sa mga ipinamigay na pondo para sa Haiti. Kami ay inuutusang maging bukas sa pagbigay ng
impormasyon. Kami ay naglalathala ng impormasyong pinansyal para sa budget. Ang aming tanging hiling ay maging kasing bukas ang aming kaibigang nagaabot ng
donasyon sa pagbigay ng impormasyon.)
Ang kaguluhang ating namalas pagkatapos ng lindol sa Haiti ay may pagkakapareho sa mga problemang naranasan sa tsunami sa Indonesia limang taong nakalipas.
Sa Indonesia, nagkaroon ng maraming taos-puso ngunit magulong pag-aksyon na nagdulot ng katagalan sa pamimigay ng mga lubhang kinakailangang kagamitan. Sa
Banda Aceh, bilang halimbawa, ay may mga naiulat na pagkalat ng simptomas ng tigdas sa mga batang tatlong beses nang nabakunahan ng iba't-ibang
Kayang-kaya naman at kailangang na kailangang talagang galingan pa lalo ang pagtulong sa Pilipinas kaysa sa dalawang halimbawang ito. Sa ngayon, mukhang
mayroong pag-asa sapagkat mas maunlad na ang paggamit ng teknolohiya at telekomunikasyon upang paigihin ang pagresponde sa kalamidad, mahigit na sa
larangan ng crisis-mapping. Ang mga pag-unlad tulad nito ay siguradong makakatulong sa Pilipinas sa mga parating na linggo. Ngunit hindi kakayanin nang
mag-isang solusyonan ng mga aktibong crisis mappers ang mga problema sa sistemang humanitarian. Nararapat na maging susunod na hakbang ay
ang paglalathala ng mga humanitarian organizations at aid agencies ng mga detalye ng kanilang pina-planong at nagawa nang proyekto at
pag-gasta sa paraang madalian, bukas, at computerized. Ang simpleng hakbang na ito ay makakatulong sa iba pang mga organisasyon sa pag-alam ng mga
kakulangan o pagdodoble-doble ng mga proyekto, at makakatulong na rin sa pag-alam ng madla kung saan nga ba napupunta ang mga pondo.
Maaari na itong simulan ng USAID--ang organisasyong malamang na magbibigay ng pinakamalaking halaga sa Pilipinas--sa pamamagitan ng mas mainam nitong
pagbantay ng mga gastusin. Sa ilalim ng batas ng Estados Unidos, ang USAID ay kumpolsadong nang mag-ulat ukol sa mga aktibidad ng kanyang mga contractors.
Ngunit ang tunay na aksyon naman ay nanggagaling sa mga subcontractors. Sa isang banda, obligado rin namang mag-ulat ng datos ang mga subcontractors,
ngunit sa kabilang banda ay hindi naman nila ibinabahagi sa publiko ang impormasyong ito. Madali lang ito solusyunan: dapat i-anunsyo lamang ng USAID na
simula ngayon, kinakailangan nang magsumite ng datos ukol sa mga proyekto ang mga contractors sa paraan ngang computerized at madalian. Ito ay
makakatulong sa pag-iwas ng pagdo-doble o pagkukulang ng mga proyekto sa madaliang panahon at--sa mas malayong kinabukasan--ito ay makakatulong din para sa
paghanda para mga darating pang kalamidad.
Mayroon nang tatlong paraang pang-internasyonal upang mamahagi ng impormasyong ukol sa humanitarian response: ang the Financial Tracking System (FTS) ng United Nations Office for Coordination
of Humanitarian Affairs (OCHA), ang International Aid Transparency Initiative (IATI), at ang European Disaster Response Information System (EDRIS). Ang mga patakaran ng
mga paraang ito ay mayroong bahagyang pagkakapareho upang mapadali ang pagtutulungan sa pagitan ng tatlo. Kailangan lamang bilisan ang pagkakabit-kabit ng
mga sistema itong at bigyan rin ng suporta ng mga pulititko. Habang hindi pa ito naisasagawa, mabuti nang mag-ulat ang lahat ng mga gobyero athumanitarian organizations sa FTS ukol sa kani-kanilang mga proyekto sa detalyadong at agad-agarang paaraan upang maging malaki ang epekto ng humanitarian aid.
Ang mga kalunos-lunos na pangyayaring dulot ng bagyong Haiyan ay inaasahang manghimok lalo ng suporta para sa lumalakas na panukalang paigtingin ang
pag-oorganisa ng humanitarian relief at reconstruction sa paraang mas epektibo at mas bukas sa pamimigay ng impormasyon. At habang
inaantay ito, kami ay nakikiramay sa mga biktima nitong teribleng kalamidad at inaalala na rin ang mga magigiting na humanitarian workers na tiyak
na magseserbisyo sa lahat ng oras sa mga parating na araw at linggo.
The Economist has called the U.K. Department for International Development (DFID) "a model for other rich countries." CGD Senior Program Associate Owen Barder, a former director of information, communications, and knowledge at DFID, provides an insider's account in:
The emerging consensus is that the response to Ebola is a test that most richcountries failed. Given that the next public health challenge is a ‘when’, not an ‘if’, what can we do to be more prepared for the next emergency?
Cat bonds might be part of the solution. For the uninitiated, this has nothing to do with securitising housepets: the ‘cat’ stands for ‘catastrophe.’ Cat bonds work like regular bonds, with the twist that if a pre-agreed ‘bad thing’ happens, investors forfeit their cash to the borrower, who can spend it right away — for example to tackle an emergency or pay for recovery.
The World Bank issued its first one in June last year to help cover the insurance costs for earthquake and cyclone risks of 16 Caribbean countries. Now, it wants to scale up and across. The Financial Times reported from Davos that the Bank wants “...to create a global fund that would issue bonds to finance pandemic fighting measures by governments and other bodies.”
It’s not alone. Richard Wilcox, interim director general of African Risk Capacity (ARC) — an underwriter created to help African governments insure themselves against infrequent-but-costly disasters like poor harvests — told reporters that his organisation wanted to offer pandemic insurance to African governments by 2017.
Lest a useful piece of financial innovation fall prey to the development hype cycle, it’s worth pinning down what these contracts can and can’t do.
Cat bonds’ promise lies in the insurance facility they provide. Governments benefit from assured payouts when hit by bad shocks; unlike donors’ unenforceable pledges, these bonds pay out specific amounts under unambiguous conditions.
Compare and contrast: as Amanda Glassman and Karen Grépin noted, it took the WHO five months to declare the Ebola outbreak an emergency. Even if the organisation had access to fully funded contingency fund, they’re not convinced that it would have been triggered — and certainly not with the predictability and immediacy that is a feature of catastrophe bonds.
The investors themselves still seem keen: if the ‘bad thing’ doesn’t happen, they earn a nice payday. Better yet, as one typically breathless industry briefing puts it, cat bonds “are almost entirely uncorrelated with macroeconomic variables.” This means that cat bonds pay out when other assets don’t, and vice versa, a property much-beloved of portfolio managers.
Live deal tracking shows that, as a result, demand for these has grown at a fast clip, totaling $23 billion today (of which nearly $1 billion was issued in just the first few weeks of 2015). Healthy demand for these products drives down yields, making cat bonds potentially a cheaper way to provide insurance against some types of risks.
Insurance contracts need triggers for payouts that are measurable and transparent: we all have access to the same seismological data, so we can all agree whether or not an earthquake of magnitude 7.3 hit Port Vila.
But many of the problems we’d like to insure against don’t benefit from the same data infrastructure. One of the constraints on mounting an early defense against Ebola, for example, was the lack of monitoring and early warning systems. The “pandemic bonds” proposed for dealing with these risks would need to be priced and triggered based on credible, transparent, and timely data about the spread of diseases— effectively presupposing the existence of institutions that, were they in place, might reduce the need for risk financing in the first place.
Even when we can agree on a so-called “parametric trigger”, it’s not clear that catastrophe bonds are the best way to insure countries against shocks. The Pacific Catastrophe Risk Insurance Pilot, for example, pools risks from five Pacific island countries for total coverage of $43 million against tropical storms, earthquakes and tsunamis. Rather than a catastrophe bond, it is a traditional insurance contract. Structuring the transaction as a catastrophe bond might lower the cost of the insurance, but only if enough investors can be enticed to take the other side of the transaction.
These contracts could also create new risks if they make policymakers spend less on prevention, a problem economists call moral hazard. Imagine an overworked civil servant at the end of long budget meeting with her Minister, faced with a choice between, say, training additional midwives or investing in frontline monitoring for an unknown, future outbreak. I know that I’d pay for the immediate need — especially if I had some type of fiscal cover if I needed it. It might sound deeply uncharitable to claim that insuring against these risks affects our incentives; then again, I would think you uncharitable if you told me offering insurance refunds to drivers for not crashing would reduce accidents or that financial incentives reduced drug use or convinced people to stop smoking– but both do.
Solve some of the problems, some of the time
The excitement about finding new uses for catastrophe bonds is healthy. Cat bonds are perfectly suited for some jobs. And if investors remain enthusiastic about piling into frontier market cat bonds, they could provide a cheaper alternative to traditional insurance contracts.
Where they are appropriate, these instruments can bring market rigour to bear on the longstanding problems of how governments with stretched budgets pay for emergencies, and make sure those funds are mobilised when they’re needed. They also provide a clear framework for donors to choose how and how much to chip in, for example by covering interest payments or by guaranteeing the outstanding debt. Compared to unenforceable pledges to buy unknowable amounts of development impact, that’s progress.
But however sexy financial innovation for development might sound, it shouldn’t distract us from paying for and helping to build boring but essential public goods, including better data for development. Those investments are enabling technologies that would make insurance contracts and catastrophe bonds feasible— and perhaps even reduce the need for them in the first place.
This report explains how Development Impact Bonds (DIBs) can increase the efficiency and effectiveness of development funding. Based on Social Impact Bonds in industrialized countries, a DIB creates a contract between private investors and donors or governments who have agreed upon a shared development goal. The investors pay in advance for interventions to reach the goals and are remunerated if the interventions succeed. Returns on the investment are linked to verified progress.
Governments, donors, and public sector agencies are seeking productive ways to ‘crowd in’ private sector involvement and capital to tackle international development challenges. The financial instruments that are used to create incentives for private sector involvement are typically those that lower an investment’s risk (such as credit guarantees) or those that lower the costs of various inputs (such as concessional loans, which subsidise borrowing).
International aid works, but it could work much better. Reform efforts focused on better planning often ignore what constrains aid agencies and takes the bite out of their commitments. In this working paper, Owen Barder shows how forming a "collaborative market" around aid—one marked by transparency and collective regulation—would pave the way for more effective aid.
In this working paper, Owen Barder raises fundamental questions about the purpose of aid transfers. For many donors the purpose is "poverty reduction" in the narrow sense of growth that reduces poverty. Barder argues that such a focus ignores key trade-offs, such as between reducing current and future poverty and between addressing the causes and symptoms of poverty, and results in less effective aid. This is an important paper for practitioners as well as students of how the aid system works.
The aid business has long grappled with the trade-off between showing results and supporting a country's own institution-building. Donors want to be sure that their money makes a difference, and often quickly. But close monitoring raises costs and pushing for quick results leads to projects that bypass or even undermine domestic institutions that are crucial to development. In Payments for Progress: A Hands-Off Approach to Foreign Aid, Owen Barder, now director of Global Development Effectiveness at the United Kingdom Department for International Development, and CGD president Nancy Birdsall propose solving this problem by having donors pay for proven progress towards such agreed goals as additional children completing school and additional kilometers of roads built. How to achieve these goals would be left to the aid recipient government. They suggest this approach may be particularly useful in fragile states. Learn more
It is sometimes claimed that big surges in aid might cause Dutch Disease--an appreciation of the real exchange rate which can slow the growth of a country's exports--and that aid increases might thereby harm a country's long-term growth prospects. In this new working paper CGD senior program associate Owen Barder argues that it is unlikely that a long-term, sustained and predictable increase in aid would, through the impact on the real exchange rate, do more harm than good. Learn more
Donor countries have pledged to increase aid by 60 percent over the next five years, and larger increases would be needed to meet the Millennium Development Goals. Can developing countries use more aid effectively? In this new working paper, CGD senior program associate Owen Barder argues that the obstacles to effective use of significantly increased aid can be overcome by a small number of practical improvements in how aid is provided and used. Learn More
This new working paper by Owen Barder and Ethan Yeh analyzes the benefits and costs of frontloading and predictability, two innovative features of the International Finance Facility for Immunization (IFFIm). The paper concludes that taken together, predictability and front-loading increase the health impact of vaccine coverage by 22 percent, even taking account of the additional cost of finance. By delivering the same money better, about two million extra lives will be saved.