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The political economy of development policies and aid, innovative finance, transparency and accountability, complexity, technology, public financial management, information, knowledge, new media, Africa, health economics.
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.
In case you missed it, catastrophe bonds recently made it to the cover of the Wall Street Journal: a once-sleepy, wonky corner of the insurance market is poised for disruptive growth. “Cat” bonds are effectively a cheaper source of large-scale insurance coverage against clearly measured risks like earthquakes, storms, or even disease outbreaks.
The insurance industry’s rich jargon aside, these are simple products. Like a bond, someone lends you money and you pay them an interest rate. The twist is that if a pre-agreed disaster or other event happens, you don’t have to repay. Setting out clear conditions for “triggering” the bond based on objective data like the violence of an earthquake reduces uncertainty about the value and timing of your post-disaster income. That, in turn, facilitates planning and preparation.
Generally, though, coverage hasn’t trickled down to the poorer and most at-risk countries—precisely those which are most vulnerable when aid fails to arrive or arrives piecemeal. Parsing data on cat bonds handily provided by Artemis, an industry observer, shows that less than a twentieth of the total value of these products issued since 1996 covers risks in countries that the World Bank classifies as upper middle-income or below (places where income per capita is $12,475 or lower). They have mainly covered risks in the US and other high income countries (HICs).
Notes: Catastrophe bond issuance data from artemis.bm. CGD analysis. Totals overstate issuance due to overcounting, for example allocating the full value of a contract to both categories if both US and Caribbean risks are covered.
Information, cost, and basis risk seem to be at least three constraints on scaling catastrophe bonds up and across:
Agreeing on these contracts requires technical nous
They’re bespoke, so you need to pay for advisors and catastrophe modeling experts
The contracts are (mainly) based on triggers rather than actual losses. That creates basis risk—a storm might cause damage, for example, but not invoke the bond’s trigger.
Examining the handful of transactions that do cover developing regions bears this out. There are cat bonds covering risks in Turkey, Mexico, and a group of Caribbean countries (through CCRIF, a regional mutual insurance facility). Those issuances depended on technical and policy support from the World Bank, without which it would have been difficult—probably impossible—to navigate these complex transactions.
One way forward is to rely on centres of technical excellence like the World Bank to facilitate risk transfer deals. And it makes sense for the Bank to deliver those transactions alongside its other “risk finance” tools, like emergency credit lines. But this deal-by-deal approach is unlikely to catalyse a broad market of catastrophe bonds covering a full range of developing countries’ risks.
We might be sanguine about the gap between insurance demand in insurance supply if aid were much more effective at tackling the consequences of natural disasters—in short, if aid were ‘as good as insurance.’ But the premise of a new CGD working group focused on improving emergency response is that ex-post aid is increasingly unfit for purpose because it is overstretched, small compared to needs, prone to arriving piecemeal and late, and able to distort incentives to invest in lowering losses.
As a result, one of the exciting questions that our working group is tackling is how donors can scale up access to these kinds of insurance instruments, perhaps by streamlining access to the necessary technical assistance, bearing some share of premiums, or commodifying them so that more institutions, agencies, and governments can more readily deploy them.
If ex-post aid is a bad substitute for insurance, there’s a compelling argument for substituting insurance for aid. Cat bonds are one part of the toolkit. Scaling up this market for lower-income countries would provide better shielding against many risks that undermine development overseas. It would leave more cash in donors’ pockets to tackle the kinds of emergencies that are hard or too expensive to insure against. And it would provide the kind of protection to poorer and vulnerable places that rich countries and large firms are choosing for themselves.
As Emma Norris at the Institute for Government notes, this transformation in Britain’s sporting performance has generated a raft of tortured analogies with various non-sporting challenges, such as industrial and education policies (on which Britain’s performance is rather less stellar). So I’m leaping on the bandwagon with two lessons for international development.
Results-based funding works, but maybe not how you think
First, as has been noted inseveralplaces, funding has been directed towards sports that are likely to secure Olympic medals, and brutally yanked away from the others. This appears to have worked—but not by changing the incentives for athletes. Athletes presumably want Olympic medals for intrinsic reasons, not to attact more funding for their sport. Even the most ardent proponents of results-based funding would blush at the suggestions that it makes athletes train harder or perform better than they otherwise would or could. Athletes want the funding so that they can win the medals, not the other way round. (Obvious parallel in development: front-line staff want the funding so that they can change the world, not the other way round).
And yet everyone agrees that results-based funding has played a big part of turning Britain’s Olympic performance around. It has done this not by creating incentives for athletes, but by channelling more money into successful activities (defined as winning medals), and away from unsuccessful ones. That has multiplied the overall success for the UK from a finite amount of funding (at least, on this particular measure of success—on which more later).
This approach to funding helps overcome various decision-making biases which might otherwise spread the money less effectively, including the sunk costs fallacy (which tends to encourage decision makers to throw good money after bad), regulatory capture (which means that sports get supported by their proxies in power), and principal-agent problems (in which decisions are made other than in the interest of the overall objective.)
Note that while results-based funding almost certainly makes no difference to the incentives for athletes themselves, it may well change the incentives of various other decision-makers in the system, such as sports administrators, coaches, universities and other sporting institutions. They now focus more on the desired outcome (more Olympic medals), which, for example, makes them tougher about team choices, or leads them to give less priority to other competitions between Olympic games. So results-based funding appears to align organisational incentives with the athletes’ objectives (winning medals), even if it doesn’t change the incentives of the athletes themselves.
Olympic sports have been managed as a portfolio, not a winner-takes-all competition for money: UK Sport has not allocated the entire budget to the sport with the best prospects of medals (probably cycling). In part this approach recognises that there are diminishing marginal returns to additional investment, and in part it reflects a preference for diversity (that is, we would rather have the same number of medals spread across many sports than have them all concentrated in one).
A lesson for development is that results-based funding can significantly increase—perhaps by more than an order of magnitude—the impact of a limited budget. You do not need to believe that front-line staff need stronger incentives to do their job. It may work instead by overcoming various biases that allocate resources ineffectively, and by realigning incentives for governments, aid agencies, NGOs and other institutions to make them more supportive of the (probably already well-motivated) efforts and intentions of their front-line staff.
As with anything that multiplies the likelihood of achieving your objectives, it is important to get those objectives right. You may think that it should not be UK Sport’s sole objective to increase the number of Olympic medals (and I have some sympathy for that). But that isn't an argument against results-based funding: it is an argument for targeting funding on the right results. There are only two ways to eliminate the risk of unintended consequences of badly-chosen objectives: you must either make sure you choose your objectives well, or do nothing that might lead you to achieve them. (The development system generally opts for the latter approach.)
Marginal gains make for podium places
The second reason for the improved performance of Team GB appears to be the “marginal gains” approach pioneered by Sir Dave Brailsford, a former professional cyclist and MBA who took over as performance director for British cycling in 2003. Before Brailsford, the UK cycling team had won only one Olympic gold medal in the whole of its 76-year history. Five years later at the Beijing Olympics, the British team won seven of the ten gold medals. At this year’s Rio Olympics, every single member of the British Cycling Track Team won a medal.
The marginal gains approach looks for small improvements in every part of the sport, on the basis that the cumulative effect of a large number of small improvements is a significant overall improvement. (The implied claim, which I have not seen properly analysed anywhere, is that the gains are multiplicative rather than additive. I think this is probably true in cycling, and in development.)
Brailsford looked for improvements in obvious places, such as training and nutrition. But as this Harvard Business Review interview explains, he also looked in places nobody else considered: the best kind of pillow to sleep on, the best kind of massage gel, and teaching athletes not to shake hands to avoid the risk of spreading germs. For example, unlike other teams in Rio, the British cyclists have started using “liquid chalk” to improve their grip on the handlebars, rather than gloves which are less aerodynamic, heavier, and reduce the athlete’s feel for the bike.
These marginal gains come about from a combination of theory and endless testing and feedback. I’ve been struck by the number of athletes in Rio who have paid tribute in interviews to the “Team GB data analysts” as well as to their coaches, physios and nutritionists. Each of these small changes—whether it is the aerodynamics of the bike, the training regime, or the nutrition—is tried and tested, and then adapted (or abandoned) in the light of what the data show. Fluid mechanics are notoriously difficult to model, so the lessons all come from making small changes and then testing them in a wind tunnel and on the track, adapting them until the desired gain is achieved. The athletes have seen first-hand how useful it is to use data to make decisions about which changes to adopt.
What are the lessons for development? One is that we should resist the search for the silver bullet: the one big intervention that will transform a service or put a country on a path to development. Many people who work in development claim that the sector in which their expertise lies is a (sometimes “the”) key to unlocking progress in all others. But it seems more likely that, as with Olympic glory, change happens through a series of marginal gains across the board which cumulate to a significant overall impact. Nutrition is not the answer to cycling; nor is it the answer to development. It is one of the many things you have to work relentlessly to improve. (In other words, I don’t agree with my colleague Lant Pritchett, who argues that the development industry focuses too much on incremental improvements and should instead pursue a broad national development agenda.) The other is that you cannot arrive at these gains solely from theory or ideology. You make small adjustments and then test, test, and test again until you are confident that you are getting the improvement you seek. Marginal gains depend on getting data, and listening to the data scientists.
The UK’s Department for International Development is one of the best aid agencies in the world, and like Team GB, it has outsize success and influence around the world, adding to Britain’s reputation and influence at relatively little cost. And like Team GB, it can stay at the top of its game by focusing resources on where they are best used, allocating them according to success, and using rigorous testing, evidence and analysis to make marginal gains which add up to significant improvements.
Our last post explained the harmful false dichotomy assumed between economic migrants and bona fide refugees. Would you believe us if we told you approximately half of those granted asylum in the EU qualified for other reasons from the formal 1951 Geneva Refugee Convention definition of a “well-founded fear of persecution”? It turns out to be true.
The details of refugee status determination are little noticed, but it turns out that international protection can also be granted through “subsidiary” and “humanitarian” designations. Formally recognized refugees are judged to be facing the “well-founded fear of being persecuted for reasons of race, religion, nationality, political opinion, or membership of a particular social group” mentioned above, and for these reasons is unwilling or unable to return to their home country. Subsidiary protection applies to those who do not qualify as refugees but would “face a real risk of suffering serious harm” if returned to their country of origin. Humanitarian status relies on other international refugee or human rights instruments to protect individuals such as the terminally ill or unaccompanied minors.
Both refugee and subsidiary protection status are defined by EU law; but humanitarian designations are specific to individual countries. The graph below depicts trends in status designations (data from Eurostat).
How do individual countries balance these different designations?
The cross-country variance is striking, with Geneva Convention status granted to 97 percent of applicants in Germany but only 6 percent in Slovakia. It is hard to imagine these differences being driven by characteristics of asylum-seekers themselves. Rather, individual countries likely exhibit different policy preferences. The EU’s recently proposed revisions to the Common European Asylum System aim to harmonize the standards and recognition rates for asylum-seekers across member states. This stance is encouraging in principle, though it remains uncertain whether Member States will agree to such a plan. In addition, we take issue with the strategy’s stated aim to deter “asylum shopping” rather than expand international protection for those in need.
We currently face difficult political times with states shirking even minimum humanitarian commitments. However, we are encouraged by UNHCR’s recognition that not all individuals who deserve international protection face targeted persecution. For example, last month’s revision to the asylum eligibility guidelines for Afghanistan asserts, “those who are found not to meet the refugee criteria of the 1951 Convention may be eligible for international protection under UNHCR’s broader mandate on the grounds of serious threats to life, physical integrity or freedom resulting from generalized violence or events seriously disturbing public order.”
The presence of these legal protection instruments raises an intriguing question for us. As we have previously discussed, the numbers of survival migrants (e.g., those who according to University of Oxford’s Alexander Betts “cannot achieve basic conditions for life and dignity in their country of origin,” but fall outside the 1951 Convention) have grown over recent years. Therefore, we strongly believe that the humanitarian community must be prepared to accommodate a broader demographic of people in need of protection. Refugee rights advocates fear that this is a zero-sum game; that is, granting protected status to people who do not fit the very specific definition of a refugee will undermine the latter’s rights. If the public feels that the definition of refugee has been diluted, they may turn their back on the whole system. We disagree. Rather than to cordon off the individuals who qualify in the traditional sense, the system should accommodate other survival migrants.
Migrants granted subsidiary protection are often accorded fewer rights than those receiving full refugee status (e.g., a more limited right to family reunification). This is far from ideal; however, any form of protection is far superior to facing deportation to a conflict-torn home or attempting to remain in Europe irregularly.
Though the concept of survival migration does not yet have a legal basis, the existing framework of subsidiary and humanitarian protection could be a good place to start implementing its principles. Without degrading the standards applied to bona fide refugees, states could and should strengthen and expand existing legal mechanisms to address the needs of all people forced to move from their homes.
It’s been three weeks since the UK voted to leave the European Union in the move popularly known as Brexit, and the consequences are still becoming apparent. The pound dropped sharply, markets went on a roller coaster ride, while one forecast estimates a contraction in the UK economy of 4.5% by 2019.
Things are so uncertain that it’s hard to make any predictions, so we won’t. Instead, senior fellow and director of CGD Europe Owen Barder joins the podcast from London this week to take a balanced look at possibilities for the UK’s future, and consider implications for the country and the developing world.
“It seems to me inevitable that leaving the EU will cause people to questions Britain’s commitment to working in partnership with other countries, whether as a nation we’re willing and able to cooperate,” Barder tells me. “The long term depends on… what we do next.
“We could turn inwards. We could get rid of our aid budget, and walk away from our climate change commitments, and put up trade barriers and protect our industries. Or we could redouble our efforts to be global citizens, and to engage effectively and cooperate with the broader multilateral system, to contribute our part of making the world a more prosperous and peaceful place.
“I think there will be some incentive on the British government to do the second of those.”
It’s been three weeks since the UK voted to leave the European Union in the move popularly known as Brexit, and the consequences are still becoming apparent. Senior fellow and director of CGD Europe Owen Barder joins the podcast from London this week to take a balanced look at possibilities for the UK’s future, and consider implications for the country and the developing world.
The rainy season, known as kiremt, began in earnest today in Addis Ababa, host city for a huge UN conference on Financing for Development. The arrival of kiremt is good news for the farmers in Ethiopia’s highlands, but bad news for the thousands of delegates from government, business, and civil society sploshing in their Birkenstocks through the puddles between the hotels and the UN conference centre.
There is good and bad news too from the conference.
The good news was put succinctly by an African Finance Minister: at last we are talking about the right things. This is a meeting about jobs, investment, and growth; not a meeting about aid.
This is a new and welcome framing for development cooperation, and it can be regarded as an early success for the new Sustainable Development Goals (SDGs), even before they are finalised. Whereas the eight Millennium Development Goals called on the world to focus on providing basic services to the poor — and so focused attention on foreign aid — the 17 SDGs pull the focus out to a bigger picture of shared prosperity and environmental sustainability. And this new framing of the development challenge is reflected in the scope of this discussion on financing: after all, it will be private finance, not aid, that generates the 600 million additional jobs that developing countries must create in the next 15 years.
I’ve been pleasantly surprised by how little opposition there has been in Addis to this change in the dialogue. I am not surprised by the welcome from developing-country governments who have been calling for this for many years; but I feared more opposition from international NGOs and civil society, whose attitude to private enterprise has in the past wavered somewhere between suspicion and hostility. Those concerns seem to be receding — perhaps in part because the message is being received so clearly from developing countries that they would rather have jobs than aid.
The three development conferences in 2015 mark an important transition. At the first Financing for Development conference in Monterrey in 2002, it was possible (just) still to think of the world as divided into rich countries and poor countries. The Monterrey Consensus was largely about what rich countries would do to help poor countries meet the MDGs, which had been agreed two years earlier at the Millennium Summit. At the third Financing for Development Conference here in Addis, that binary distinction is gone. Middle-income countries are providers of capital, technical assistance, and foreign aid to the developing world, and they are simultaneously home to two-thirds of the world’s people living in absolute poverty. There are now just 31 low-income countries, following the graduation this month of Bangladesh, Kenya, Myanmar, and Tajikistan, so it no longer makes sense to think of the world as divided into rich and poor countries. We are a global community now, with shared problems whose solutions lie more than ever in international cooperation.
But there is bad news too.
First, the breadth of the Addis Ababa Action Agenda is matched by its shallowness. Nobody is making any meaningful commitments; there is nothing here against which anyone can be judged. This might be why there is so little conflict about the contents of this agreement: perhaps nobody thinks it matters.
Second, there is a tendency to alchemy. Additional finance will not come from communiqués; and there is a limit to what we can do with clever innovative finance schemes. The constraint on investment in developing countries is not a lack of internationally mobile capital: it is the lack of a pipeline of investible propositions. And too little of what we have heard so far in Addis has convinced me that this will change.
Third, the conference is doing a better job of setting the stage for September’s summit on the SDGs than it is of helping to make a success of December’s summit on climate change. Without an agreement to put a stop to climate change, the rest of the year’s discussions will be wasted. The way to bring serious financial resources to bear on the transition to a low carbon economy is to put a price on carbon. Furthermore, putting a value on the planet’s environmental resources will generate more income for developing countries than anything else under discussion in Addis. A carbon price is mentioned in passing in the Addis Ababa Action Agenda, but it needs to be right at the heart of any future discussion of development finance.
And fourth, as I argued before the conference, there is too little recognition of the wealth locked up by policies and behaviour which distort the global economy, creating massive economic, environmental, and welfare losses for most of the world’s population. There is too much attention to resource flows, and too little to the underlying policies which shape them. If developed countries really want to see large-scale investment in jobs and growth in the developing world, then a good place to start would be for them to open their markets to developing country exports.
While the public circus of meetings and discussions continues, a small but powerful group of officials are closeted away in private session, finalising the text of the Addis Ababa Action Agenda. The remaining disagreements have few immediate implications for people living in poverty, but reflect the courtly dance of international geopolitics. Should the principle of “common but differentiated responsibility” be an overarching principle for the SDGs, or is it limited to the field of environmental protection? Is FFD the last word on the “means of implementation” of the SDGs, or can negotiators push for more substantial commitments in New York? And there is the usual jostling between international organisations for revised mandates: this time, between the OECD and the UN for policy leadership on tax.
Because the Addis Ababa Action Agenda is not a binding agreement, it may seem like pedantry to debate these details to the bitter end. But in the long run they matter, because the language of these communiqués accumulates over time, setting precedents and framing future discussions.
As Addis enters its second day, I’m feeling positive overall about the conference, and what it means for 2015 as an important year for development. These conferences matter because they frame and inspire. Of course it would be nice to have binding commitments and measurable targets, but I’ll take talking about the right thing over having targets for the wrong thing any day.
Kudos to Finland for ascending to the top spot in CGD’s 2016 Commitment to Development Index, our ranking of how a country’s policies help or hinder development. Most of the policies that score well on the index require some sort of international cooperation—so what does the CDI tell us about the apparent retreat of globalism across the political landscape? I discuss the latest rankings, their implications, and the politics that could affect them with Owen Barder, senior fellow and director of CGD Europe, which produces the Index.
Approximately 15 million people are displaced outside of their home countries. Most refugees are not able to return home for many years, often more than a decade. But just 8% of these refugees are resettled safely to third countries. So without focused actions, today’s internationally displaced people are likely to be part of the growing “refugee caseload” for many years, neither able to return home nor able to settle permanently elsewhere. That not only deprives refugees of the ability to live full, productive lives, but is also overwhelming the world’s humanitarian aid budgets. Although the real value of global aid has grown 9% in the last five years, all of that increase (and then some) has been eaten up by the rising costs of humanitarian aid and refugees.
Instead of condemning more and more people to a long-term future as aid-dependent refugees, what if we turned the support they would receive from donors over many years into an endowment that would enable them to start a new life in a new country? By capitalising future humanitarian aid spending and borrowing on capital markets, we could invest in these people. This could simultaneously make it more politically palatable for countries to take in people fleeing violence, radically improve those refugees’ lives, and reduce long-run humanitarian costs for donors. That’s the basic thinking behind the Humanitarian Investment Fund, an idea that could perhaps help Kenya, for example, which this week threatened to close the Dadaab refugee camp, to see the 300,000 Somalis living there as an opportunity rather than a threat.
In the long run, refugees can make significant economic and social contributions to countries that choose to resettle them. But in the short run, facilitating their arrival and integration involves a cost to the government – resources like housing and language classes come with a price tag. Although costs decline as refugees integrate into labour markets, the issue remains one of the most politically challenging today. Newspaper coverage focuses on the (usually exaggerated) short-term fiscal effects and while ignoring the longer-term benefits that young, entrepreneurial workers can bring to aging workforces. This mismatch between short-run costs and long-term benefits creates an opportunity for financial innovation that can leave everyone better off.
Consider a Syrian living in Jordan. Like many professionals forced to flee their homes, she is probably relatively well-educated, but struggles to find formal employment. She can't go back: the risks are too great, and there may be precious little of her old life left to return to. The humanitarian response plan to accommodate Syrians in Jordan indicates that donors pay an average of $1,210 a year to support her. Instead of paying her that money year after year to maintain a (bad) status quo, we could invest in her up front by allowing her to resettle in a safe third country. This might result in a short-run cost for that country – but it would also generate long-term benefits.
Imagine a framework under which she is endowed with a sum of money to offset the (temporary) costs she and her future host government incur for her resettlement. Potential host countries anywhere in the world – perhaps those with labor market or demographic needs – can offer to accept her and receive the associated endowment.
This scheme might be particularly attractive to developing countries, which could especially benefit from both the voucher payment and the skills that refugees could contribute to their labor markets. For every refugee currently living overseas and supported by humanitarian aid, a fund could pay this one-off "voucher" to any country able and willing to accept them. By accepting the payment, the receiving country would be obliged to grant the refugee the same status it accords other migrants for whom it doesn't receive any payment. At a minimum, this would mean granting the right to work and access to public services (not currently guaranteed in all potential host countries). So returning to the example of the Kenyan government, which cites security concerns as its reason to close the Dadaab refugee camp, viewing the 300,000 Somali refugees as representing a potential investment in Kenya might change the political and fiscal algebra, or at least have better options for relocation.
We call this framework the "Humanitarian Investment Fund." What might it cost? We can get an idea by comparing the amount countries pay to support refugees overseas and the costs they report incurring when they resettle them. Looking at those differences in today’s money (net present value terms) and considering a scheme that would work for 100,000 refugees gives us a rough idea of the range of capitalisations we’re discussing. (We do this for OECD countries that report the first year costs for refugee resettlement, and leave out countries that don’t report this figure, like Australia, or reported an implausibly low figure).
For the median case, we estimate that 100,000 refugees could be resettled for about $4 billion dollars, or $40,000 per refugee. That’s squarely in the ballpark of problems that the global public sector can get its arms around. For example, if we were able to capitalise a $4 billion fund with a bond paying 2.5% a year, the nominal interest cost of permanently moving people off the global refugee caseload would be just $1,000 per person per year. And borrowing $4 billion dollars is not a high hurdle: in 2014, global aid commitments were just over $135 billion; the UN High Commissioner for Refugees’ 2014 budget was $3.6 billion (and that was only half funded).
More generally, these are conservative estimates for three reasons:
Quantity: Assuming 100,000 potential beneficiaries is an overstatement, at least to start. In reality, less than a tenth of refugees are designated eligible for resettlement. In 2014 in Jordan, only eight-tenths of one percent of the total Syrian refugee population was resettled overseas (6,084 of 623,112).
Price: Our calculations assume gently declining costs each year for a decade, tied to OECD countries’ first-year refugee costs. In fact, most refugees receive this level of benefits for only in their first year in most of Europe, between six months and five years in the US (it varies across an alphabet soup of programmes), and six months to three years in Canada. So we are being conservative in attributing this scale of cost to refugees for a decade, and only slightly optimistic in assuming that they decrease slowly over time, pricing in payoffs as refugees integrate into local labour markets (which could be much greater in practice).
Time: These figures assume that in the absence of this scheme, a person would spend 10 years on the international refugee caseload. In reality, we have a shaky idea of how long the average refugee spends in and out of camps overseas. The oft-quoted figure of 17 years, for example, turns out to be a zombie fact that has gained currency by virtue of repetition. The assumption of ten years is reasonable but ultimately just that – an assumption.
These numbers seem especially reasonable in light of the European Commission’s proposed scheme to fine countries as much as €250,000 for every asylum-seeker that they should admit, but refuse to. That scheme is intended to be a stick, punishing countries which fail to meet their commitments to share in the “burden” of hosting a small number of refugees. Our proposed system would instead operate as a carrot, creating healthy and fair incentives for countries to go above and beyond this minimum hurdle to the mutual benefit of all involved.
The program could be expanded to many more potential refugees – without reducing commitments to those already on the caseload – by pooling these costs and borrowing from capital markets, backed by donors’ promises to repay. This method of using private capital, repaid from future government budgets, builds on other successful financial innovations. For example, IFFIm is an international fund which borrows from capital markets to pay for vaccination programs, with donors repaying the costs of borrowing over time. IFFIm’s "vaccine bonds" borrow cheaply because donors are largely wealthy OECD countries with strong credit ratings.
The proposed system creates a "triple-win." Potential host countries would have more control over who they admit, and be able to alleviate up-front short term costs. Refugees would be able to escape the long-term destitution and disempowerment of refugee camps and dependence on humanitarian aid; with a job in a safe third country, they would be able to apply their skills and create positive spillover effects for their families and home communities. Donors would assume no additional expenses, transferring the long-run costs of a substantial and growing caseload of humanitarian aid into upfront resettlement investments.
A scheme like this would likely need to have at least three core features in order to be politically viable, and attractive for the refugees themselves. It would need to be
Voluntary: Both refugees and host countries must agree to participate. Under a matching system, refugees would make a list of places they would like to live, while host countries would be asked to identify who they would most like to admit, likely based on labor market needs and integration capacity. The fiscal voucher each refugee brings with them lowers the "relative cost" to potential host countries. (Countries could use the endowment to provide for local services where the refugees are resettled, perhaps reducing possible sources of friction with local communities.) This system would enroll refugees from their current country of residence (Syrians in Jordan), rather than individuals who have arrived in the EU seeking asylum, as proposed by Will Jones and Alex Teytelboym of the University of Oxford.
Additional: People eligible for this scheme would still have to qualify for refugee status in prospective host countries, even though they would be enrolled overseas. Refugee status granted to individuals overseas by UNHCR does not necessarily align with the criteria in place in host countries. To be eligible for this scheme, refugees would have to qualify under both UNHCR and host country rules.
Valuable: In order to earn the lump-sum payment, receiving countries would have to confer real benefits to their new arrivals. In particular, the receiving country would have to grant refugees the right to work and access to public services.
Refugees are a net financial win for receiving countries, paying more into public treasuries than they cost in services. The economic arguments in favour of accepting refugees from Syria – a middle income country before this crisis unfolded, with high levels of education and healthy civic social capital – is not complicated. As our colleague Lant Pritchett explains, Europe’s aging populations are living longer than ever, creating larger cohorts of pensioners and thereby placing increasing tax burdens on dwindling numbers of younger, productive workers.
But as our colleagues Michael Clemens and Justin Sandefur have discussed, “countries struggle to absorb refugee flows when those flows are sudden and concentrated in a limited area.” In other words, the greatest tension comes up front, when host countries scramble to find the time, money, and compassion to facilitate arrival and integration. Those difficulties are compounded by the fact that resettlement schemes are usually centrally-run while pressure on local services is local. This proposed framework slackens the immediate financial constraint, empowering governments and communities to determine where these funds are best spent – a fiscal release valve for some of these pressures.
There are a number of reasons that some countries are unwilling to accept refugees. Some of these may reflect simple-minded xenophobia. But a dab of financial chemistry could at least tackle the fiscal case against doing so, putting a thumb on the political scale in favour of compassion, and helping many people secure better, safer, and more productive lives.
The High Level Panel on Humanitarian Cash Transfers, which I chaired, published our report this week. We concluded that the international system should take deliberate steps to seize two big opportunities to improve humanitarian aid. First, we should take the opportunity to improve humanitarian aid by providing many more unconditional cash transfers. Second, we should use the spread of cash transfers to help bring about much-needed improvements in the humanitarian system.
The Panel, convened by the British government, was confronted with two competing narratives.
One narrative says that the humanitarian aid system is broken. According to this view, the organisations that we need to deliver help to people in need are competing with one another and not cooperating; too much of our funding is lost in rounds of subcontracting to intermediaries; refugee crises are lasting longer than ever, and we are not equipped to deal with it.
The alternative narrative is that the humanitarian system is working pretty well. On this view, the system needs more funding, but the cluster system works does a reasonable job of coordinating the contributions of different organisations; and while reform is slower than we would like, the system is continuing to improve over time.
We concluded that while both these views contain elements of truth, the reality is somewhere in between. The humanitarian system does amazing work with insufficient resources, but there are striking inefficiencies and duplications which the system, left to its own devices, cannot solve.
Most humanitarian aid is not what you may think. What begins as an emergency often goes on for years — sometimes decades. Two-thirds of humanitarian aid is estimated to go to countries that have received it for eight years or more. There are about 57 million people who have been displaced by conflict. That’s more people than the population of England and Wales.
As the nature of humanitarian need changes, affecting more people for far longer, so too should our response. Some humanitarian agencies have started to provide cash transfers, instead of shipping in food, water, shelter, pots and pans. These cash transfers have been intensively studied — perhaps more than any other humanitarian intervention.
The Panel concluded that, where cash transfers are appropriate, the evidence suggests that they will bring significant benefits. Cash transfers can:
align the humanitarian system better with what people need, rather than what humanitarian organisations are mandated and equipped to provide;
increase the transparency of humanitarian aid, including by showing how much aid actually reaches the target population;
increase accountability of humanitarian aid, both to affected populations and to the tax-paying public in donor countries;
reduce the costs of delivering humanitarian aid and so make limited budgets go further (a four-country study comparing cash transfers and food aid found that 18 percent more people could be assisted at no extra cost if everyone received cash instead of food; and according to one study in Somalia, 85 percent of cash transfer budgets went to beneficiaries, compared to only 35 percent of food aid budgets);
support local markets, jobs, and incomes of local producers;
increase support for humanitarian aid from local populations;
increase the speed and flexibility of humanitarian response;
increase financial inclusion by linking people with payment systems; and,
most importantly, provide affected populations with choice and more control over their own lives.
The Panel was clear that giving people cash is not always the best option. Sometimes markets are too weak or supply cannot respond, in which case cash transfers would not be appropriate and in some cases could lead to inflation.
The Panel concluded that the experience of cash transfers in humanitarian situations has created two important opportunities, neither of which will be seized unless the international community makes a deliberate and conscious effort to do so.
First, the High Level Panel concluded, in the light of the evidence, that there should be much greater use of humanitarian cash transfers in the settings where they are appropriate, without restrictions and delivered as electronic payments.
Second, we concluded that the expansion of cash transfers offers an opportunity to address some of the long-standing weaknesses and inefficiencies in the international system.
We have not recommended a specific target for the amount of humanitarian aid that should be delivered as cash. Instead we believe that the decision should be made case-by-case, to ensure that all aid is provided appropriate to the context.
But we do believe that the burden of proof must now be changed. Today, proponents of cash have to explain why this would be better than providing food or other in-kind aid. We do not accept this presumption. Instead, the questions should always be asked: “Why not cash? And, if not now, when?”
Our 12 recommendations seize the first opportunity by bringing about a rapid acceleration in the use of cash transfers in humanitarian situations. Cash transfers should be central to every humanitarian appeal. We should invest in preparedness, linking where possible to social protection schemes. We should systematically benchmark all humanitarian aid and compare it to giving cash instead. And we should increase the transparency and accountability of humanitarian aid, whether it is provided as cash, vouchers or in-kind.
Our recommendations also seize the second opportunity: to use the introduction of cash transfers to accelerate long-needed reform the humanitarian system as a whole. To avoid duplication and inefficiency, we argue that cash transfers should be large-scale, coherent, and unconditional. The humanitarian system should leverage the skills and expertise of the private sector. And the delivery of humanitarian cash transfers should be financed and managed separately from assessment, targeting and monitoring.
The large number of refugees from Syria looking for safety elsewhere has belatedly increased political interest in the humanitarian system, and has drawn attention to the changing nature of the challenge. As Mark Malloch Brown pointed out in a recent CGD essay, this is one of the global problems that we can actually get our arms around and solve. The World Humanitarian Summit in May 2016 gives us the opportunity to do that. The High Level Panel on Humanitarian Cash Transfers believes that our 12 recommendations can make a significant contribution.
The High Level Panel on Humanitarian Cash Transfers Panel was convened by the UK Department for International Development. The members of the panel are:
Owen Barder (Chair), Center for Global Development; Chris Blattman, Columbia University; Lindy Cameron, Department for International Development; Jan Egeland, Norwegian Refugee Council; Mohamed Elmi, National Assembly of Kenya; Michael Faye, Segovia and GiveDirectly; Jacquelline Fuller, Google.org; Marcia Lopes, Independent; James Mwangi, Equity Bank; Tara Nathan, MasterCard; Andrew Natsios, Texas A & M University; Toby Porter, HelpAge International; Claus Sorensen, European Commission’s Directorate- General for Humanitarian Aid and Civil Protection; Jane Waterman, International Rescue Committee and Lauren Woodman, Nethope.
I should like to thank the Panel’s smart, committed and hard-working secretariat at ODI: Wendy Fenton, Sarah Bailey, Paul Harvey, Rachel Slater, Simon Maxwell and Fiona Lamont; and Theo Talbot at the Center for Global Development.
Spare a thought for the British Secretary of State for International Development, Justine Greening. If any of her Ministerial colleagues had announced a new £1.8 billion (US $3 billion) initiative, they would have been on the news. Heck, they might have been on the front page. But Ms Greening's speech last week announcing that the UK will spend £1.8 billion in 2015/16 on economic development passed with only a murmur. To give you a sense of scale, this pledge is about the same as the entire budget of the Foreign Office.
It is good to see the policy pendulum swing back to economic growth. The Millennium Development Goals may have focused too much attention on achieving human development goals by directly funding particular services, when equitable economic growth and jobs are likely to be the best way of achieving lasting improvements in living standards for most people. And the speech contains an explicit and rather pointed "challenge to NGOs" to get with the programme: as the Secretary of State says, people want to be in control of their own lives, not trapped in aid dependency.
Though the emphasis on growth is welcome (if not entirely novel: this was also one of Douglas Alexander's main themes when he became Secretary of State in 2007), the policy announcements themselves are disappointing. The Secretary of State announced that DFID will double aid spending on economic development to £1.8 billion in 2012; appoint a new Director General for Economic Development; work with British companies to improve job opportunities; give more money to MIGA, make more use of returnable loans and equity; and work more with the London Stock Exchange.
In other words, if the challenge is growth, our answer is aid. It reminds me of the old adage: if all you have is a hammer, everything looks like a nail.
I am all for using some of the aid budget to promote economic development, especially if the money is going to be used on proven, effective interventions (or, failing that, small scale, rigorously evaluated experiments). I applaud the decision to use a wider range of financial instruments. But it is disappointing that the aid budget is the only instrument we can think of to promote economic growth in the developing world. For example there was no mention of:
a. trade reform - we are in the process of negotiating Economic Partnership Agreements with much of the developing world, and talks are beginning on a new transatlantic trade agreement; but there was no mention of how Britain would ensure that these created new opportunities for exporters from developing countries;
b. illicit financial flows - Britain could tackle its offshore financial havens, which provide the secrecy needed to allow companies and individuals to extract resources from the developing world in amounts that are estimated to be far larger than our aid budgets;
c. tax cooperation - as well as the tired old commitment to build capacity in developing countries - important though that is - we could make some concrete steps towards international agreements to reduce the erosion of the tax base by clever accounting, and share information automatically not only between industrialised countries but with developing countries too;
d. migration - a good way to enable peope to learn new skills and set up successful businesses at home is to allow them to travel, including as students to learn in our universities, or to travel to earn income which they can send home in remittances or use to invest in businesses in their country of origin:
e. technology transfer - our Commitment to Development Index shows that our restrictions on the use of intellectual property have been gradually tightening, making it harder for businesses in the developing world to adopt innovations and ideas developed elsewhere, so preventing poor countries from closing the gap on the richer countries;
f. subsidies - our subsidies to farmers and fishing - again, far larger in total than all our foreign aid - make it difficult for producers in the developing world to compete not only in our markets but also in third country markets where they are competing with our exports.
g. investment transparency - for trade and investment to lead to growth and jobs, it must avoid corruption and theft, which have been especially problematic in some resource-rich countries; but there was nothing in the speech about the further steps that companies will be asked to take to be transparent about their investments and activites in the developing world.
h. the environment and climate change - one of the biggest long-term challenges to incomes and growth in the developing world is the threat of climate change; but the only climate that was mentioned in the speech was the climate for business.
i. buy locally - and if we are going to use the aid budget to promote growth, a good place to start would be to use it to buy goods and services from local suppliers in developing countries.
Incidentally, does anyone else remember Andrew MItchell arguing vigorously in opposition and in government that DFID should focus on results rather than inputs? He used to boast:
There are no more day trips to Maputo by Gordon Brown to announce half a billion pounds for primary education.
We seem to be back to the bad old days of announcements of eye-watering spending targets for aid, garnished with changes to the DFID organogram.
When DFID was established in 1997, it was created as a development ministry not merely an aid agency, with a mandate to look across government to see how joined up policy could create a better environment for international development. The Secretary of State's speech on growth, which contains pledges of aid but nothing about the myriad of other things we can do to promote sustained, equitable economic growth, shows how little of that aspiration now remains.
It’s that time of year again. In just a few weeks, CGD will release the 2012 results of its annual Commitment to Development Index (CDI) – a product that measures the extent to which wealthy nations are supporting poorer countries’ development efforts in seven policy areas: aid, trade, investment, migration, environment, security, and technology. In this week’s Wonkcast, I chat with David Roodman, CGD senior fellow and chief architect of the CDI, and Owen Barder, senior fellow and director for Europe, about the ABCs of the CDI and what we are calling a “deep dive” into the CDI for Europe.
David recalls that CDI had its origins in a 2001 meeting between CGD president Nancy Birdsall and Moisis Naim, then editor-in-chief of Foreign Policy Magazine. Moises suggested that CGD, then a brand new think tank, should publish an index. Nancy knew she wanted to measure the rich world’s support for development and put David in charge of figuring out how. Eleven years later the index results remain fairly consistent -- with smaller, northern European countries grabbing top spots. I ask David why.
“Superficially the story is about foreign aid,” he says. “These Nordic countries give a lot of foreign aid for the size of their economies -- upwards of 1 percent each year. But they are also good in other areas like environmental policy.”
David says that the small size, wealth, and homogeneity of Nordic countries may lead to higher trust in government which in turn helps to explain their strong performance on the CDI. The view that the government can be a solution and not an obstacle to a country’s problems is reflected outward towards the poor world, he says.
In contrast, South Korea and Japa have consistently landed at the bottom. High barriers to trade and migration contribute to the low numbers, David adds.
Owen then tells me that his “deep dive” on the CDI for Europe grows out of a simple question he asked David more than a year ago: what if the index were to treat Europe as a single country. Owen’s hunch, that the strong performance of a handful of smaller countries was hiding a more substantial story turned out to be true.
“David found that while it’s true a group of European countries always perform well there are other European countries, including some of the larger and richer ones, that don't do very well,” explains Owen. “Europe as a whole comes in just a little above average.”
While the ranking is revealing, Owen sees the number crunching as just the start of the exercise.
“I’m using the CDI much as it was designed to be used in CGDs original work -- as a framework for thinking about how rich countries, and in this case European countries, impact the developing world,” he says.
To this end, Owen has begun to commission European policy experts in each area of the index to better understand Europe’s performance. Among the questions they will examine: how much of an EU country’s policy stance within a specific CDI component is determined in Brussels and how much remains in the hands of national policy makers.
Work is well underway on technology policy, for example, while Owen says he is still seeking experts to do the research on the investment and security components. (Interested top-notch policy researchers are invited to contact Owen directly)
I end the Wonkcast by proposing a tougher question. Can the CDI remain relevant in a G-20 world, where the global systemic impacts of powerful non-rich countries such as China, India and Brazil are increasingly important? Tune in to hear my musings in response to my own question.
My thanks to Alexandra Gordon for her production assistance on the Wonkcast recording and for drafting this blog post.
The Syrian regime of Bashar Assad has killed thousands of people since protests began last year. The Arab League, United States and European Union have condemned the violence and imposed strong sanctions against Syria’s oil sector and central bank, but they have not adequately hindered the regime. It’s time to try a new tool that would strengthen existing sanctions: preemptive contract sanctions.