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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 Commitment to Development Index ranks 27 of the richest countries on their dedication to policies that benefit poorer nations. Finland takes first in 2016. The UK moves down three places to 9th while the United States moves up one to 20th. Switzerland takes last of 27.
The Commitment to Development Index ranks 27 of the richest countries on their dedication to policies that benefit poorer nations. Denmark takes first in 2015. The UK is tied for sixth while the United States is 21st. Japan takes last of 27.
Why does Britain score consistently well in its approach to aid? At a recent Center for Global Development in Europe event, Sir Tim Lankester, a former British civil servant, shed some light on this. His new book, The Politics and Economics of Britain’s Foreign Aid: The Pergau Dam Affair, sets out the story of a decisive moment in British development policy. It is a story of misguided policy, the interplay of public and commercial interests, the weight of pure politics over sound cost-benefit analysis, and most importantly of emerging from failure with stronger institutions for the future.
As an American learning about Pergau Dam for the first time, I came to grasp what a debacle it was and what a profound effect it has had on the way that the British foreign aid system works today.
Pergau Dam was the most controversial incident in the history of British aid. In short, the British government under Margaret Thatcher committed aid to fund a costly dam in Malaysia in exchange for a major arms deal. Several years and hundreds of millions of pounds later, the High Court ruled that the agreement was unlawful, setting the tone for tighter scrutiny of British aid programs.
As Sir Tim explains, the story started with then Secretary of State for Defense George Younger’s agreement with the government of Malaysia in 1988 that Britain would provide aid in the amount of 20% the value of arms sales from Britain to Malaysia. This aid would come in the form of a dam project, despite a subsequent assessment from economists and engineers of the Overseas Development Administration (ODA - the UK’s development arm at the time, which reported to the Foreign Secretary) who found that the dam would not be a cost-efficient way to increase the production of electricity. In 1991, then Foreign Secretary, Douglas Hurd, authorized the expenditure of £234 million from the aid budget anyway, to maintain a deal made by the defense secretary and approved by Prime Minister Margaret Thatcher, and later John Major. The World Development Movement called for a judicial review of the funding of Pergau Dam on the grounds of a law which states that aid can only be used for “promoting the development or maintaining the economy of a country….or the welfare of its people”. The British High Court ruled in 1994 that the project was not of economic benefit to the Malaysian people; the deal linked aid directly to commercial contracts and was unlawful.
Sir Tim Lankester was Permanent Secretary of the Overseas Development Administration from 1989 to 1994. At the event and in his book, he gives a first-hand account of the Pergau Dam Affair, stating that it merited a critical account of what happened and why. He was joined by Sir Simon Jenkins, a journalist who covered the Pergau Dam story, and CGD’s own Owen Barder, who was working at the UK Treasury at the time.
Here is the full video of the event, hosted by CGD in Europe and the Institute for Government:
Simon Jenkins described the whole affair as “the story of an attempt by the machine to justify a bad decision”; it was a deal that started with the wrong intentions and a saga that unfolded as some government officials attempted to justify the decision or cover it up, instead of attempting to reverse it. Owen Barder spoke of the legacy of Pergau Dam on British foreign aid: for one thing, it enforced the idea that tying aid is damaging and that the objective of UK aid is to reduce poverty. The International Development Act passed in 2002 makes it illegal to use aid resources for purposes other than poverty reduction. Furthermore, it affected government administration; the Labor Party’s decision to create a separate government department responsible for development in 1997 was reinforced by the Pergau Dam saga. The ODA had been flatly against the deal that linked aid with arms trade, but was too politically weak while in the Foreign Office to get the deal reversed. The current structure in the UK - an independent Department for International Development, headed by a cabinet minister- is unusual, and gives the Department powers in making policy and managing its budget that other development agencies don’t have. (See also Owen’s paper: Reforming Development Assistance: Lessons from the UK Experience.)
Sir Tim pointed out that greater transparency when the deal was being made would have stopped it in its tracks; today NGOs and the media have easier access to information that can strengthen a system of checks and balances between branches of government. And today, the UK Department for International Department is in fact ranked the most transparent donor in the world; it’s impossible to measure the full impact of Pergau Dam but DFID’s openness to the public relative to other development organizations is likely also an example of its lingering effects.
In the short term, the publicity around the Pergau Dam case in the early ‘90s had a devastating effect - ODA’s reputation was damaged and the aid budget was cut – but in the longer term it has been a powerful lesson with several positive effects on the British aid system. Pergau Dam was a good example of how policies and institutions can improve from failure. Don’t take it from me though – it’s worth watching the whole story from Sir Tim and the event panelists.
Development agencies are increasingly interested in making aid more transparent, stakeholder-led, and effective by expanding the use of payment by results (PbR) — rewarding those implementing projects on the basis of results delivered instead of paying for inputs. For payment by results to work, you have to get a lot of things right. It has to be for the right kind of programme targeting the right results, properly measured and rewarded in the right way. These issues, and more, are laid out in Stefan Dercon and Paul Clist’s 12 principles for payment by results (PDF).
We agree with much of what they have to say, but their suggested principles would be most appropriate if development cooperation were characterized by stable and predictable relationships between inputs such as teachers hired and outcomes such as basic literacy, albeit subject to unexpected shocks and principal-agent constraints. (Their analysis is set out in more depth in a previous paper co-authored by Clist). Some of their principles would make sense if the comparison were between payment by results and the hypothetical administration of inputs by aid agency staff who have perfect information about the ‘production function’ that mediates the relationship between inputs and outcomes.
In our view, development and service delivery are usually the outcomes of complex relationships between inputs, outputs, and outcomes that are not completely known in advance, but discovered through a process of experimentation, learning, and adaptation. We take the view that the advantages and disadvantages of PbR should be judged in comparison to existing input-based aid programmes, which can have serious shortcomings.
Where We Agree
There are significant points of agreement between our principles and the corresponding ones proposed by Clist & Dercon, and we have also benefited from a useful exchange with them about these points. We agree that:
PbR is not a panacea for all the problems of development cooperation, and applied badly or in the wrong circumstances it may be worse than the alternatives;
PbR is unlikely to succeed if it is conceived primarily as a way to use financial incentives to oblige governments or contractors to do something that they would not otherwise do;
the definition and measurement of a performance measure is essential to the success of PbR;
risk transfer from donors to delivery organisations is not an objective of PbR;
monetary incentives might weaken intrinsic motivation of individuals, and alternative mechanisms to create effective incentives should also be considered; and,
evidence of the success of any aid programme should be in terms of impact rather than inputs or intermediate effects.
Where We Disagree
In other important respects our principles differ from those of Clist & Dercon, as a consequence of a different view about development cooperation in practice, particularly the challenge of managing complexity:
For Clist & Dercon, the main purpose of PbR is to solve principal-agent problems in service delivery by improving incentives. Their discussion appears to focus mainly on output-based contracts with service delivery organisations. For us, the main purpose of PbR is to enable autonomy for local implementers, which is essential to find solutions to complex problems — including results-based aid agreements with government agencies.
For Clist & Dercon, PbR is less attractive in uncertain environments such as fragile states; in our view PbR may be more attractive relative to other aid instruments in these contexts, because they are precisely the situations in which local autonomy and experimentation are most useful.
Clist & Dercon characterise measuring results as a cost; we believe that measuring results is more useful — and may be no more expensive — than measuring inputs and activities because it generates useful information, feedback, learning, and improvement.
Finally, we agree with a point made by Paul Clist in the longer paper from which their principles are drawn: donors need to consider the contracts they use for PbR and, where appropriate, make sure that they create sufficient opportunity for implementing agencies to experiment, fail, learn, and adapt. On average, payment by results requires that the payments for successful outcomes must also cover the costs of failures along the way, but this logic is not meaningful if project horizons are so short or working capital so scarce that implementers only have one chance at getting it right. PbR may create circumstances in which experimentation and adaptation are feasible; but this does not mean that all problems can be tackled this way, nor can every implementing partner take advantage of the freedoms that PbR should offer.
We contend that our 12 principles for payment by results are more relevant in the real world, which is characterised by high levels of ambiguity, uncertainty, and unexpected change.
Before he became the UK Secretary of State for International Development, Andrew Mitchell was scathing about the habit of having big international conferences to ‘put large sums of money on the table’.
Yet on Wednesday, the British Government and Melinda Gates co-hosted the ‘London Summit on Family Planning’, a huge international conference at which rich countries and foundations were persuaded and cajoled into putting $2.6 billion on the table for contraception.
This was the second of three ‘golden moments’. The first was the London Vaccine Summit in June 2011. This raised $4.3 billion for vaccination to immunise 250 million children and so prevent more than four million premature deaths. Next year a third golden moment is planned about hunger and food security.
The first two ‘golden moments’ have achieved impressive results. According to DFID, as a result of British aid pledged to GAVI last year, a child will be vaccinated every two seconds for five years, saving one child's life every two minutes. The promises made at yesterday’s family planning summit are estimated to provide 120 million women with access to contraception, resulting in 200,000 fewer lives lost in pregnancy and child birth, and 100 million fewer unintended pregnancies.
For the British government, these golden moments have two related purposes. In part they are to galvanise global action on an important issue, bringing together governments, foundations, civil society and the private sector. In part they are a way to show the hard-pressed British taxpayer how their money is being used to achieve real-world results, and to show that by keeping its aid promises, Britain can set the global agenda.
Family planning was given a bad name by an emphasis on population control in the 1970s, and the atrocities of forced sterilisation programmes. In 1994 the Cairo conference sought to change the debate, by putting individual rights and the health of women at the centre of family planning policy and agreeing that family planning should be provided as part of a broader package of reproductive health care. Any slowdown in population growth would be the result of freely-made decisions by individual families acting in their own interests. But donors remained nervous of the whole issue and the Cairo Plan of Action never had the traction it deserved. As my CGD colleague John May describes, family planning has been woefully neglected for 20 years, despite the huge impact it can have on the lives of women and girls, on families and communities.
It would have been easy for the British government to choose something less controversial than family planning for their second golden moment, such as providing clean water or school textbooks. It is to the great credit of Andrew Mitchell, David Cameron and Melinda Gates that they did not shy away from the controversy which has prevented real attention to this issue. At the London Summit on Family Planning on Wednesday, David Cameron gave a storming speech (starts at 4’54’’ in this video) which earned him a well-deserved standing ovation.
All the speeches at the summit went to great lengths to reclaim family planning as an agenda about women’s rights, not about population control. David Cameron said:
Yes family sizes need to come down: but they come down not because we say they should, but because the women who have children want them to. And to those who try to say it is wrong to interfere by giving a woman that power to decide: I say they are the ones who are interfering, not me.
So far the summit has been well received. Inevitably there is some griping from those who oppose contraception for religious reasons. But no good deed goes unpunished, and in this case the summit has come under what might be called friendly fire. Oxfam’s Barbara Stocking appears to have read my guide on to how to criticise aid projects without realizing it was intended as satire. She is right that contraception is not a panacea, but I must have missed the DFID press release which claimed otherwise. And nobody who heard the speeches of David Cameron, Andrew Mitchell or Melinda Gates could take seriously her accusation that this agenda is driven by population control rather than women’s rights. I am consistently annoyed by the inability of the development industry to recognise and praise moral courage when they encounter it.
Much as I admire the substance of what has been achieved by both ‘golden moments’, there was much I did not like about the ‘London Family Planning Summit’. It was not really a summit, in the sense of an international meeting to make decisions. Rather it felt more like Disney meets Davos, with a lot of choreographed announcements and uplifting videos. (Except Disney would have done a better job of putting more women on the stage.) The previous British government caused a certain amount of irritation around the world by summoning world leaders to participate in events whose primary purpose seemed to be to allow British politicians to bask in the limelight, and the current government would do well not to follow in their footsteps. President Museveni of Uganda said publicly that he did not see why he should fly 4,000 miles to be given the chance to speak for five minutes. (Watch the video from 6'03'' where he says, 'this is not a theatre and I am not an actor'). I heard similar exasperation privately from other international guests. And the Gates Foundation seems to be labouring under the illusion that it has become a sovereign country.
Even so, irritating the global elite is a small price to pay for a process which appears to have brought about a once-in-a-generation change in attitude towards contraception and the commitment of substantial funds and political commitment, which will bring real improvements to the lives of millions of women and save millions of lives. In a sane world we should be able to do this without having to create artificial ‘action forcing events’. But in the absence of a better approach, the British government did what it had to do to build momentum, secure high level political commitment and raise the money which was announced on Wednesday. (And DFID staff deserve particular thanks for their hard work, professional knowledge and networks which pulled this all together.)
So let’s suspend our professional cynicism for today (only) and applaud David Cameron, Andrew Mitchell and the Gates Foundation for what they have achieved with both golden moments. They’ve taken a brave political gamble to focus attention on family planning, and to twist arms all around the world to ratchet up funding. In both vaccines and family planning they’ve picked important issues, and put their money behind demonstrably cost-effective ways to help people in developing countries. Their leadership will transform the lives of millions of people.
When Sir Tim Lankester defends the aid programme against charges that it can sometimes be misused for other things, he knows what he is talking about. He
was the most senior civil servant in Britain’s aid ministry (then called ODA, now known as DFID), and in 1991 he bravely blew the whistle on a project to
finance a dam in Malaysia because it was not a good use of development money (and indeed turned out to be connected to agreements to buy British arms).
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.
At a recent book launch, I was on a panel on which we were asked whether we can show that aid is a good use of public money, if the problems it aims to tackle are complex. I replied with a half-remembered statistic, which (now that I have had a chance to look at the numbers) turns out to have been right. It was this:
If you add up all the aid that all OECD countries have given since they started counting it in 1960, and then assume that the only thing that this aid has achieved was the eradication of smallpox, then the whole thing would still be a bargain, costing less than half what the UK National Health Service spends on average to save a life.
Here are the numbers. According to the OECD, total aid since 1960 has been about $2.6 trillion in cash terms, which works out at about $4.7 trillion in 2013 prices (that is, taking account of inflation).
The story of the eradication of smallpox is told in one of the chapters of the CGD book, Millions Saved. As is documented there, though the eradication of smallpox was mainly financed by the affected countries, the effort succeeded because of the contribution of foreign aid (though I acknowledge that no one can say for certain what would have happened in the absence of aid).
These days most of us do not remember how terrible smallpox was: it has killed more people in history than all wars put together. Since the last death from smallpox in 1978, somewhere between 60 million and 120 million premature deaths have been averted by its eradication.
If you divide the total amount of money we have spent on all aid from all donors to all developing countries put together by the minimum number of deaths averted only by the eradication of smallpox you get:
$4,700,000 million in aid / 60 million deaths averted = $78,300 per death from smallpox averted
The UK’s National Institute for Health and Clinical Excellence (NICE) uses a cost-effectiveness threshold of roughly £100,000 per death averted. A treatment which costs less than £100K (or $160K in USD) to avert a death is regarded as good value for money. Some British newspapers – including papers which are hostile to foreign aid – argue that these cost-effectiveness thresholds are too low. The Daily Mail, which calls NICE a “rationing body”, says that we should be willing to spend more that this to prolong life or improve its quality. Perhaps we should: the threshold used in America is far higher, and in other public policy contexts we use much higher figures than this for the value of a human life.
So even if we make the absurdly conservative assumption that the only thing achieved by the totality of all foreign aid has been the eradication of smallpox, and that this saved only 60 million lives (which is the lower end of the range), then the cost per death averted has been less than half the cost which we say is good value for money to avert a death in the UK National Health Service, a threshold that is often regarded as too low. Unless you want to argue that we should value a British life at more than twice the life of an African, then we can conclude that foreign aid has been, on average, good value for money.
(The smallpox programme itself – which cost about $1.5 billion – was ridiculously good value for money, at just $25 per death averted.)
Of course, the eradication of smallpox is not in reality the only success to which foreign aid has contributed. As well as ending deaths by smallpox, aid has contributed to reductions in deaths caused by malaria, diarrhoea, and diseases, together averting about 10 million deaths a year (roughly equivalent in deaths averted to eradicating smallpox six times over). The Green Revolution in agriculture may have averted a billion deaths from hunger. Millions of children have gone school, and families been given access to clean drinking water and electricity. Farmers have been given access to irrigation, seeds and fertilizers, and entrepreneurs have been given small loans. Governments have been helped to collect tax and organise elections. Millions more women have access to family planning. And there is evidence – including this award-winning paper – that aid has, on average, helped to increase economic growth and rising incomes. But it turns out we don’t need to include any of those benefits in our calculation to know that aid has been good value for money.
This is not a call for complacency. Some aid programmes fail, and some of those failures are avoidable. We can continue to improve the value for money of aid, and we have an obligation both to taxpayers and to the people we are trying to help to do so. We should be conscious of the opportunity costs of using aid in the way we do, rather than in some other way which might help people more. I am proud to work for an organisation which devotes quite a bit of time and effort to finding positive ways to help to make aid better, as well as arguing for other policy changes to accelerate development. The conversation about how to improve aid is important: but please let’s start with the recognition that aid is already fantastically good value for money.